ERC-6551 Token Standard: A Complete Guide. With the addition of smart contract capabilities, NFTs can now own assets, communicate directly with applications, hold tokens, and operate as an on-chain identity (ERC-6551). With the addition of smart contract capabilities, the ERC-6551 token standard, which debuted on the Ethereum mainnet on May 7, 2023, intends to improve the functioning of NFTs. The NFT is associated with an Ethereum account, creating a token-bound account (TBA) upon implementing this token standard. Nonfungible tokens (NFTs) can now directly interact with applications and own assets thanks to ERC-6551.
Each ERC-721 currency has its smart contract wallet that developers may create using TBAs. These wallets can act as on-chain identities, handle transactions, communicate with other DApps, and store tokens. Tokens created under the ERC-721 standard can seamlessly transition to ERC-6551 because TBAs are compatible with both standards.
How is ERC-6551 an Improvement on ERC-721?
Integrating ERC-6551 with ERC-721 NFTs improves their capabilities in multiple areas, including metadata flexibility, composability, on-chain interactivity, and trackable history. The ERC-721 token standard was created to establish a minimal interface for NFTs. Making digital assets representing multiple real-world assets is challenging with NFTs issued under ERC-721 since they cannot be linked to other on-chain assets. Nonethereum’s decentralized applications and smart contracts couldn’t meet the standard. After adopting the ERC-6551 standard, NFTs can own other NFTs and assets, access accounts on various chains, and administer them.
Metadata flexibility
Regarding efficiency, security, and standard resource identifiers (URIs), ERC-721 tokens are rigid due to static JSON metadata. Another issue that the standard addresses is the inflexibility of ERC-721 NFTs. Once the data is generated, it cannot be changed by adding new data or values.
Trackable history
Compared to ERC-721, the ERC-6551 token standard offers more information about an asset’s utility and transaction history, which helps to understand the worth of an NFT and its interactions in the past.
More composability
With ERC-6551, it’s possible to combine NFTs with other tokens and linked assets into a single TBA. Greater composability is achieved by consolidating NFTs, tokens, and assets, allowing seamless asset transfers and consistent switching between platforms.
On-chain interactivity
With ERC-6551 in place, an NFT address can serve as an on-chain identity, allowing easier communication with DApps and smart contracts built on the blockchain.
How do ERC-6551 NFTs Work with Existing ERC-721 Tokens?
A proxy contract mimics the characteristics and metadata of the preexisting ERC-721 NFTs, allowing ERC-6551 NFTs to be integrated with them. The ERC-6551 standard is compatible with all ERC-721 tokens and uses the same open registry system. This registration serves dual purposes as a central location for TBA creation and administration. Initiating a registry function and paying a fee are prerequisites for creating a TBA for an ERC-721 coin. The registry is now setting up a proxy contract to mimic the original ERC-721 token’s metadata and attributes.
Thanks to the proxy contract, the TBAs can authenticate signatures and sign messages on behalf of the NFT. Thanks to this capability, TBAscano interacts with various network smart contracts.
Use Cases of ERC-6551
Several industries can use ERC-6551 tokens, including the fashion industry, gaming, business-to-consumer (B2C) transactions, and decentralized autonomous organizations (DAOs). Learn how ERC-6551 powers a series of use cases and improves the NFT technology stack:
Fashion
To facilitate the ownership of digital garments by on-chain avatars, ERC-6551 was introduced by the Future Primitive development team, headed by Benny Giang and Steve Jang. NFTs can own more assets with ERC-6551, which opens the door to the potential of trading features.
For instance, an NFT profile that owns a bag can acquire hats at will or swap them for other bags. The novel technology is more appropriate for the digital fashion business, where artists may combine NFTs to create new art. The original inventors can still be identified by the unit NFTs that are now part of the combined work. With this new opportunity, artists would be more likely to collaborate on innovative projects, which would be great for digital fashion.
Gaming
With ERC-6551, a new frontier in the gaming industry has opened up: avatars may now securely store assets and cryptocurrencies in their wallets. Players have an additional incentive to play the game because their characters can trade in their crypto and acquired assets for other assets. The token standard also introduces a new level of character customization. Using TBAs, programmers can make “Network Playable Characters” that can be used to make money from in-game assets. It opens up new avenues for NFT producers to profit as well.
B2C business
ERC-6551 provides developers complete data about users’ NFT interactions, including an asset’s transaction history. Use this data to design in-game incentives, loyalty programs, and airdrops for your business-to-consumer (B2C) venture. Retailers may now use the new feature to assign ratings to products based on the value of the associated NFTs.
DAOs
Members of a DAO can be located via TBAs. By centralizing all information into a single NFT, keeping a DAO member’s history in two places: their wallet and the NFT will become unnecessary. DAO members can sign contracts, use services, and cast votes with this feature.
Limitations of ERC-6551
Several NFT initiatives may be using methods incompatible with the ERC-6551 token standard. Hackers may also target these tokens. Adoption from existing projects is a crucial hurdle for any new technology. The ERC-6551 token standard isn’t always compatible with how NFT projects implement their features. For instance, the ERC-6551 cannot be used by projects such as CryptoPunks since they do not adhere to the “ownerOf” mechanism. To find out who the current owner of a certain NFT is, the ownerOf method in ERC-721 standard NFT contracts returns their Ethereum address.
It is more difficult to integrate older cryptoPunks that predate ERC-721 with current standards, such as ERC-6551, because they do not have this mechanism. Additionally, developers will have to go through a learning period before they can use the new token. Due to financial considerations, integrating with the ERC-6551 standard may not be a priority for certain platforms. So, even with the launch, not everyone can get their hands on ERC-6551 NFTs. With the increasing popularity of ERC-6551 tokens, hackers are also likely to target them. Hackers will quickly take advantage of security holes in NFTs since, once integrated with the ERC-6551 standard, they become owners of assets and engage with applications.
