What is ERC-6551? The Game Changing NFT Standard Explained

What is ERC-6551?

Earlier, ERC-721, the token standard for creating NFTs on the Ethereum blockchain, could not interact with smart contracts and decentralized applications (dApps), own other assets, and evolve as required. This limited the utility and scope of ERC-721 NFTs. ERC-6551, the new token standard for the Ethereum network, expands the capabilities of ERC-721 NFTs to another level, unlocking new use cases of NFTs. 

ERC-6551 token standard improves the functionalities of Non-Fungible Tokens(NFTs) by enabling their smart contract accounts. The new token standard is based on Ethereum Improvement Proposal 6551 (EIP-6551) update that went live on May 7, 2023, on the Ethereum Mainnet. 

ERC-6551: token bound accounts(TBA), creates a smart contract wallet for each ERC-721, allowing them to perform transactions, interact with other applications, hold tokens or other NFTs, or serve as on-chain identity. These TBA are created and managed through a permissionless registry that keeps all executed on-chain activities and records unaltered.

Additional Read: Top Ethereum ERC-20 Tokens

How does ERC-6551 Improve NFTs?

Improved User Experience: You can manage and compose all your NFTs with other assets, such as tokens or NFTs, into a single ERC-6551 NFT. This one profile for all offers convenience and a seamless user experience in transferring or selling assets together.

On-chain Identities: With ERC-6551, you can create multiple on-chain identities through NFTs and use them to interact with smart contracts and dApps, without relying on a wallet. This opens new use cases like in-game rewards, credit ratings, and loyalty programs based on the history of the NFT.

Interoperability: Token-bound accounts are compatible with the Ethereum network, enabling them to be used across different platforms, serve as identities or make transactions, and much more.

Trackable History: ERC-721 NFTs do not have utility or transaction history, which is a drawback. Token bound account registry resolves this by allowing you to track the ownership, transaction, and utility history of your NFT.

Challenges of ERC-6551

• ERC-6551 is new to the crypto world, which makes it challenging for existing platforms and crypto projects to shift to the new token standard.
• Some NFT platforms might not be compatible or lack the required technology for integration with ERC-6551, which can be a hurdle in its adoption.
• As ERC-6551 tokens can hold other assets and interact with dApps, they are vulnerable to fraud and scams, hence need to be more secure.
• ERC-6551 tokens can become expensive amid the Ethereum network congestion period, narrowing their application range.
• User awareness and intuitive experience are a must for the successful adoption of ERC-6551.

The Future of NFT

ERC-6551 is a groundbreaking technology that can open a wide range of possibilities for ERC-721 NFTs applications across platforms. It introduces token-bound accounts for ERC-721 tokens, empowering them to transfer and own other assets. However, it also brings new challenges and security issues, which can be overcome by active community participation and development. For new users, it is advised to grasp the working and uses of these NFTs as well as beware of frauds and scams before investing. 

Read On: Top NFT Projects in 2023

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