NFTs: Token Types
It’s often said NFTs are a bubble; in that case, let’s break the NFT bubble down. Crypto winter is here and for some, it’ll be the first; for others, it’s just another one. The once famous collections fall to their “floor price” or crash 90% below their All-Time High.
These bear markets happen from time to time and they’re likely considered to be market cycles. The upside to these cycles is that new players are show up and bring new ideas. It’s also the the best time to learnto avoid making mistakes over new trends.
With that said, it’s now clear NFTs aren’t just art; they have other significant use cases to serve as digital private property.
But, let’s think about what Non-Fungible Tokens are for a moment. An NFT or a Non Fungible Token is used for identification, (like an Axie from the Axie Infinity project) or (like an ENS domain). They were initially designed to be used on platforms that offer collectible items, access keys, lottery tickets, numbered seats for concerts and sports matches, and so on. But that’s just when we talk about the ERC-721 standard…
Do you know about other NFT standards?
ERC-721
The standard NFT — the most popular one — is the ERC-721. This token’s unique properties allow for it to have a different value from another ERC721 (unlike the ERC20 standard which works on a 1:1 ratio). This trait may be due to its age, rarity, and uniqueness among countless other conditions that allow it to be different from any other; it’s basically the “fingerprint” token.
The ERC-721 (Ethereum Request for Comments 721) was proposed by William Entriken, Dieter Shirley, Jacob Evans, Nastassia Sachs in January 2018. This standard allows tokens to be transferred from one account to another or receive the current token balance of that asset. It conveys a unique form of creating ownership for assets residing on the blockchain.
ERC721R:
The “R” in ERC721R stands for refund. “Cryptofighter” proposed this ERP, and it seems to solve accountability issues. This proposal could avoid the increasing number of rug pulls, scams, and exploits coming from NFT degens.
This token allows collectors to run a “trial” period of the NFT with a refund period to return the NFT if it’s faulty or simply didn’t meet buyers’ expectations. Of course, all of this would occur within indicated dates programmed on the NFT’s smart contract, in which case, the total value of the NFT purchase would be sent back to the NFT buyer (excluding the payment of the gas fee that is paid by the collector.)
But, what other traits does this token have to choose over ERC-721?
Prevents Rug Pulls:
If you have 30 days to request a refund after minting, you can stop overnight rug pulls where artists don’t deliver as promised. That enforces NFT creators to commit to a project before receiving the money used for minting. The waiting period to receive the payment is the same as the requested period for a refund.
Low-Risk Purchase:
If the buyer doesn’t like how the project is going, they can return their NFTs and opt out of the project.
Protected Floor Prices:
There’s no reason for a collector to sell below the minting price during the refund period allowing them to request a refund.
Accountability:
It could help s their show a more transparent side to it all. The refund option can help show buyers how the project deals with the community in cases where a misunderstanding is entitled to a refund.
At the end of the day, the main benefit for a creator with an ERC721R token is to provide credibility and legitimacy to their community and potential buyers.
ERC-1155
ERC-1155 allows you to send many items to multiple recipients in a single transaction. It helps reduce gas prices and traffic loads on the Ethereum network. The transfer, approve, melt, and trade functions all take arrays as parameters, which let you perform between 100–200 such operations in a single transaction, unlike the standard ERC-20 token.
“The Crypto Item Standard” token was born from the need to deploy several items simultaneously and lower the gas price.
To transfer a single item, just supply each array with a single element. To transfer two items, use two elements, and so on.
These items make more sense as fungibles (all are equal in value) since they’re used and traded in large quantities and you don’t necessarily care about the individual units. Even more substantial items like weapons or armor for a videogame could be designed as fungibles.
ERC-20 is limited to fungibles, and ERC-721 is limited to contracts with individual unique copies of items. These two token types aren’t very compatible or mixable.
ERC-1155 Crypto Items have improved this by combining the benefits of both. You can create thousands of different items for your game, and depending on the use case, each unit can have its record and be fully fungible with the others.
Trades and multi-transfers, as mentioned above, can now be done with a mixture of Fungible tokens and Non-Fungible tokens, making this an immensely powerful upgrade compared to existing token standards.
Soulbound Tokens
This new proposal by Vitalik Buterin aims to achieve “non-transferability.” SBTs are NFTs that can’t be transferred once received. Unlike Non-Fungible tokens such as ERC-721, Soulbound tokens are designed to be untradable. This type of NFT could represent educational credentials, employment history, or hashes of writings or works of art.
According to Vitalik’s document, an individual would gain SBTs from other Souls within the decentralized society. In certain belief systems souls are the spiritual and immortal part of the human being. A university, for example, could issue SBTs to graduating alumni as proof of completion.
But for now, SBTs aren’t don’t seem to replace NFTs. The two digital assets, theoretically, serve different purposes. While NFTs are tradable and act as a financial asset, SBTs are supposed to serve as a proof of character rather than a proof of wealth.
Conclusion
It’s pretty clear that there are a number of use cases that can be achieved with NFTs despite the fact that we’re still at an early age of decentralization. It’s only a matter of time until new actors get involved in this disruptive era. Sure, NFTs can be considered bubbles that are traded in a way that makes people speculate on their price, but they have great potential to become the next big financial tool.
Sources:
https://github.com/ethereum/EIPs/issues/1155
https://github.com/exo-digital-labs/ERC721R
https://thedefiant.io/nfts-refunds-standard-erc721r/
https://github.com/pizzarob?tab=repositories
