What’s the Deal with NFT Standards?
Non-fungible tokens, or NFT’s, are often touted as a way to bring new audiences into blockchain. They can be used for digital collecting and gaming, offer verifiable ownership over digital assets, and can be bought, traded or sold across the world in a matter of seconds. With the NFT space poised to hit maturity over the next 12 months, it’s important to understand why we need token standards, how they differ, and what they’re used for.
Wait, What Is an NFT?
Thanks to the blockchain, we can now purchase and own digital files, assets, and properties. These properties come in the form of a digital token, which can be traded and sold much like any other asset.
Non-fungible tokens are those that are unique and can be clearly distinguished from other tokens.
They can support digital assets, or be backed by physical ones, however, these tokens also represent one whole asset and are not divisible (as with Bitcoin and other fungible tokens). This allows for fractional property ownership, digitisation of generally illiquid markets e.g. real estate or collectibles, and new interactions/experiences with digital media and gaming.
Why Do We Need Token Standards?
Token standards create a uniform set of rules (or in this case code), which allow for:
- Easy integration across a number of platforms.
- Increased utility value and network effect, as the token can be used in more places/for more applications.
I’m going to use ECOMI as an example here, as it’s the easiest to relate to. So let’s say we create a digital collectible using the ERC721 standard (we’ll touch on this later) and you purchase it on ECOMI Collect. In this case, the NFT represents a digital character. And then let’s say you want to store that digital collectible somewhere safe. You grab an ECOMI Secure Wallet or the ECOMI Collect Digital Wallet, which stores NFT’s and supports the ERC721 standard, and you can, therefore, store your NFT on the wallet.
Here’s where token standards get more interesting. A number of games are being developed which use NFT’s for characters, in-game items and weapons, collectible items etc… If the in-game items are based on the ERC721, you’ll also be able to store them on the Secure Wallet.
Furthermore, thanks to a partnership with OpenSea, you’ll also be able to sell your collectibles cross-platform and on open marketplaces which also support the same standard! So as you can see, creating and adopting token standards gives us the opportunity to support and use NFT’s cross-platform, regardless of who created the character/collectible item in the first place.
Of course, depending on the desired use, some standards are better than others, so let’s take a closer look at some of the more established NFT standards, and what they’re used for.
Ethereum Token Standards
Before we get too far into Ethereum token standards, it’s important to remember that Ethereum is a smart contract platform. This means that all of these standards are built for a particular function, and can create traceable, and legally verifiable, ownership over an asset, automatically, whilst simultaneously removing human interference. So without further ado, let’s get into it!
Built on top of the Ethereum blockchain, the first real iteration of a non-fungible standard came about with ERC721. It was popularised in late 2017 with the rapid adoption of CryptoKitties, a game which allowed for the purchase, and subsequent ‘breeding’ of digital cats. These cats were bought and sold as a virtual token, and some have fetched prices over $200, 000! At its peak, CryptoKitties was responsible for more than 10% of total transactions on the Ethereum network.
As I mentioned earlier, this standard allowed for tokens to be distinguished from each other, granting the ability to attach tokens to different types of assets and verify their ownership on the blockchain. Put simply, ERC721 is the non-fungible token standard, allowing us to create and exchange NFT’s.
And whilst ERC721 is the most popular, readily integrated, and available cross-platform, it also has a number of inefficiencies depending on the use case. The following is a list of other ERC standards and what they’re built for.
Created by the team at Enjin, this standard allows for both fungible and non-fungible items in the same smart contract. In doing so, ERC-1155 reduces the amount of data required, creating smoother deployments and requiring a lot less network power.
The best example of ERC-1155 is seen in blockchain gaming. Rather than requiring a new contract for every in-game item, you can now create multiple items using the same contract. Moreover, say you collect weapons and coins (crypto) in a game, you can now achieve both with ERC-1155, drastically reducing the resources required to efficiently run blockchain based games, and allowing them to be stored in a simple wallet interface.
994 created Delegated Non-Fungible Tokens (DNFT’s). As it states in the Github description, attaching a physical asset to a digital token requires more than just a way to verify the token. It “also requires legal validity within the context of physical sovereignty.” That is, there has to be a legal framework surrounding the ownership, sale, and registry of land/property for it to work.
ERC-994 has created a system where DNFT’s can identify an area or zone (let’s say the suburb you live in), and can then delegate NFT’s to represent individual houses or parcels of land. In this way, ownership of property can be tokenised whilst also providing a way to update land registries, and legally verify their sale. It was designed with the following essentials:
- A non-conflicting geospace
- Legal validity and physical sovereignty
- Compatibility with financial contracts
Also known as the ‘dank’ standard, ERC-420 is more than just an afternoon on the couch. This standard was proposed by the PepeDapp guys and is designed with digital trading cards in mind. It takes into account that in a deck of trading cards, you usually end up with a number of the same card (often referred to as resource cards). If you can cast your mind back to Pokémon cards, we’re talking about the energy cards, or those required to actually use your Pokémons attacks. The same goes for Magic the Gathering with Mana.
Of course, even though cards of the same type may be considered fungible, in some cases, the edition of the card can make it more valuable. For example, if you had a Charizard that was issues as number 1 as opposed to number 100 it is often afforded greater value. However, the ERC-420 is proposing to remove this distinguishing feature, preferring to make the card itself the rarity, as opposed to the issuance, to become the standard for digital trading cards.
This is the standard for renting out your NFT’s, by creating an API to allow any “rival” NFT to be rented. In this case, the NFT is considered rival if being in possession of the NFT simultaneously prevents consumption/access to other individuals. The example given in the Github proposal is driving a car is rival but watching the sunset is non-rival. That is, driving a car prevents others from driving the car, and in the same way, being the renter of an NFT would inhibit other peoples access or use of it.
The standard can also be used by general purpose applications on the Ethereum network and provides a standard set of commands to allow an owner to rent access to their NFT’s, while subsequently allowing users to view all past and current rental agreements. A current example of this would be renting land in Decentraland. However, it could also allow for digital artworks to be rented and displayed in ones home or gallery, changing our interaction with artworks and removing the need to transport a physical piece.
Inspired by ERC-809, the ERC-1201 standard proposes to tokenise rental rights, as opposed to just allowing for them. This creates a means for the rented NFT to be easily exchanged between parties. It is probably easiest to think of it as follows:
- ERC-721 creates an NFT for your house.
- ERC-809 creates a standard set of commands allowing you to rent said house.
- ERC-1201 tokenises this right, and in a practical sense, means the leaseholder could sub-lease your house, simply by exchanging the token.
Welcome to the world of crypto-composables, or CNFT’s. With this standard, not only do you own an NFT, but your NFT can own its own NFT’s. In the event you sell your NFT, you actually sell all the tokens attached to it as well. As the Github proposal explains, ERC-998 is:
A standard extension for any non-fungible token to own another non-fungible ERC-721 or fungible ERC-20 tokens. Transferring the token composition means transferring the entire hierarchy of items. For example, a cryptokitty may own a scratching post and a feeding dish; the dish may contain some amount of fungible “chow” tokens. If I sell the cryptokitty, I sell all of the belongings of the cryptokitty.
So, sometime in the near future, we may be faced with the very real possibility that your digital cat actually has more money than you. Lucky you own the cat!
NEO Token Standards
When I first got into the blockchain space, I often heard NEO described as the Ethereum of China, as it is a similar smart contract platform. And although they’re nowhere near as prolific (yet) NFT standards on the NEO blockchain are currently in development by Trinity. The NEP-10 is being built in a similar fashion to ERC721, with similar protocol additions also being developed on the chain.
“ Non-fungible tokens are also a strategy for NEO. When gaming hits blockchain, you get collectables. Those collectables can be traded on blockchain so it’s a perfect match.” — Da Hongfei, CEO, NEO
NFT standards are also currently in development on the EOS and Stellar blockchains, however as it stands Ethereum is still the main platform for NFT’s and token standard development. It is also highly likely that I missed some standards, or that by the time you read this, there are 1000 new ones! Time will tell :)
If this article helped to shed some light on NFT’s and the different standards, I would love to see your support by holding down the clap button, or give me some feedback in the comments section below!
ECOMI is a technology company based in Singapore and is leading the way in the emerging digital collectibles space. ECOMI offers a one-stop-shop for digital collectibles through the ECOMI Collect app bringing pop culture and entertainment into the 21st century.
The Collect app allows users to experience true ownership of premium digital collectibles. Through the app marketplace, users can obtain common, rare, or one-of-a-kind digital collectibles, share these across the social network service, and exchange them with the Collect community, all from the palm of their hand.
ECOMI sees digital collectibles as a new asset class which offers intellectual property owners the opportunity for new revenue streams in the digital landscape. Digital streaming, gaming, and in-app purchasing have become a multibillion-dollar market and the next to join this digital trend is the pop culture and collectibles industry.