ERC-6551: A Gamechanger for Non-Fungible Tokens (NFTs)?

A new Ethereum standard could revolutionize the NFT industry. What's behind ERC-6551 and why is it important?

ERC-721 was the first Ethereum token standard to popularize non-fungible tokens (NFTs) in the crypto space. This allows digital assets to be verifiably uniquely mapped to a blockchain. The token standard was first published in 2018, and over the years has grown into an NFT token ecosystem that is now nearly 20 billion US dollars worth.

But ERC-721 is far from perfect. One shortcoming: until now, smart contracts could not be directly integrated into it. A new Ethereum standard called ERC-6551 should change exactly that and open up a new dimension of application possibilities and functions.

What is the ERC-6551 standard?

ERC-6551 is a newly introduced standard on the Ethereum Blockchain that allows NFT's can act as their own smart contracts - or "token bound accounts." In other words, an NFT can now have its own wallet address, hold assets and conduct transactions, just like a normal Ethereum wallet.

What makes ERC-6551 special is that it can be used to extend the existing functionality of ERC-721 tokens (NFTs) without having to set them up from scratch. The big advantage here is that ERC-6551 is compatible from the start with almost all existing NFT infrastructures that support the Ethereum Virtual Machine (EVM).

The implementation of the ERC-6551 standard now allows an ERC-721 NFT to do everything that can be done with a regular Ethereum wallet. So, for example, it opens up the possibility of using an NFT to store other NFTs, or to trade ERC-20 tokens.

The ERC-6551 standard thus redefines the notion of ownership on the blockchain: it allows NFTs, such as artwork, gaming items or digital real estate, to have their own digital wallets and communicate directly with other applications or tokens on the blockchain. This greatly expands the possibilities of NFTs and opens up new applications in art, gaming, finance and more. Three examples:

1. Art

NFTs with ERC-6551 functionality can be used to represent rights to digital art or intellectual property. For example, an artist can create a work of art as an NFT and hold other NFTs in his or her wallet that represent reproduction, exhibition or resale rights. In this way, legal norms from the traditional art world are transferred to the world of NFTs.

2. Gaming

In an online role-playing game, your character, let's call him "Knight Zed," collects various items. Thanks to ERC-6551, Zed becomes an NFT and gets his own Ethereum wallet. All collected items can be stored as NFTs in Zed's wallet. In addition, Zed can now also store ERC-20 tokens, such as game currencies, in his wallet. Thus, the ERC-6551 standard could revolutionize the world of cryptogames by greatly simplifying the integration of NFTs into games and unlocking new applications.

3. DeFi

NFTs could also be used in DeFi protocols, for example, as collateral for loans. An NFT could hold several assets in its wallet, which would then serve as total collateral. This could improve risk management in DeFi.

Conclusion

The importance of ERC-6551 is enormous. The standard offers significant benefits for various use cases and has the potential to revolutionize the use of NFTs. However, what is listed here is only the tip of the iceberg, as the potential for applications is virtually unlimited.