64. ERC-6551 – the new NFT standard. What does it bring to the non-exchangeable token sector?
Is the ERC-721 standard going away? A little yes and a little no. Newer and newer standards are appearing on the market, including ERC-721X or ERC-6551, which we will discuss today.
ERC-6551 is a new Ethereum standard for NFT. It introduces new facilities like making non-exchangeable tokens more dynamic or interactive. Will the new proposed standard take Web3 to a new level? What do you need to know about ERC-6551? We invite you to read on!
ERC-6551 – definition
Before discussing the new standard, it is important to recall the definition of ERC-721. This is also the standard for NFT tokens, designed to create NFT on the blockchain Ethereum. However, with the exception that ERC-721 cannot interact with intelligent contacts and dApps. Nor can they own other assets or evolve at all in line with growing market demands and requirements.
The utility and scope of ERC-721 is somewhat limited. So it’s no surprise that the industry has come up with a new standard for Ethereum that extends the capabilities of NFT ERC-721. ERC-6551, as it is referred to, unlocks new NFT use cases.
What does the ERC-6551 standard bring to the table? First and foremost, it improves the functionality of non-exchangeable tokens. In its operation, it builds on the Ethereum Improvement Proposal 6551 (EIP-6551) update, which was implemented on 7 May 2023 in the Ethereum mainnet.
ERC-6551 creates accounts associated with the tokens, simultaneously running a portfolio of intelligent contracts for each ERC-721. In practice, this allows them to perform transactions, interact with other applications, store NFT or serve as an identity in a chain.
How does the ERC-6551 standard work?
NFT ERC-721 have limited utility. They can only be transferred and owned. They cannot own other assets. Nor can they interact with other contracts or evolve based on external factors or industry requirements.
ERC-6551 circumvents this problem. It uses an unauthorised registry compatible with the already existing NFT ERC-721. What is the register in question? It is a intelligent contract that acts as a directory for TBA. Any user can generate such a directory for any ERC-721 by calling a function in the registry and paying a small fee. The registry then implements such a contract, and it in turn acts as the TBA for the token in question.
The authentication contract is the representative for TBA. It inherits all the properties and metadata of the original non-exchangeable token ERC-721. Furthermore, it implements the EIP-1271 standard, thus enabling message signing and signature verification, on behalf of this token. This allows TBA to interact with other, intelligent contacts across the Ethereum ecosystem (decentralised DEX exchanges, lending platforms, gaming environments and others).
TBA (Token-based Authentication). Token-based authentication. In other words, a protocol designed to generate encrypted security tokens. TBA allow users to verify their identity. Such a token allows users to access protected information and resources for a limited period of time, without having to re-enter their password or username.
How does the ERC-6551 perform on the NFT?
In short, it streamlines them. With the new standard, we can combine all our NFT and other assets into one. One profile means convenience, a seamless user experience when transferring or selling their assets.
Additionally, with ERC-6551 we can create multiple on-chain identities. And this is all via NFT. We can use the identity generated in this way to interact with other smart contracts and dApps. We do not then have to rely on the wallet itself. This opens up new possibilities for use – rewards, credit ratings or even loyalty programmes.
Another feature of ERC-6551 will be interoperability. Tokens in this standard will be able to be used on different platforms, to serve as an identity and a means of transaction.
ERC-721 tokens have no utility history. This is their huge disadvantage. The account registry present in the ERC-6551 standard solves this problem. They allow the tracking of ownership, transaction or utility history of NFT.
Despite these many advantages, there are also many challenges facing this new standard. As a novelty in the world of cryptocurrencies, it makes it difficult for already existing platforms to implement this new standard.
Also, importantly – some platforms may not even be compatible with this standard! The technology for integration of ERC-6551 is demanding, which at the same time is a barrier to adoption.
Another disadvantage of ERC-6551 is counterintuitively their usability. As they can store other assets or interact with dApps, they are vulnerable to phishing and all kinds of fraud. When it comes to the issue of security, we still have a lot of room for improvement here.
And lastly, perhaps the biggest downside of the ERC-6551 standard is that they can overload the mainnet Ethereum.
Without doubt, ERC-6551 is a groundbreaking technology. It has many advantages and disadvantages. It opens up the possibilities of ERC-721 NFT, on various platforms as we know them.
At the same time, it brings new challenges – including security issues that need to be worked on with the introduction of this new token standard.
Complete today’s lesson!