How does ERC-6551 open a new era of NFT?

Written by: Kelly Kim@Pinata Translated by: MetaCat

ERC-6551 token-bound accounts (TBAs) reveal a new paradigm. Any single non-fungible token (NFT) can now transcend its traditional role as a mere digital asset and become a fully functional wallet. NFTs are no longer just good looks, they are alive.

Editor's Note: The first iteration of NFT (10k PFPs) is over, it's time to return to the fundamentals of NFT and regain the true mission of NFT, such as digital ownership, creator/user rights, decentralized metaverse, etc. ERC-6551 is an important innovation in the NFT field, let's find out!

**ERC-6551 token-bound accounts (TBA) reveal a new paradigm. Any single non-fungible token (NFT) can now transcend its traditional role as a mere digital asset and become a fully functional wallet. NFTs are no longer just good looks, they are alive. **

The implications of this technological breakthrough extend far beyond artworks and digital collectibles. Trading, gaming, and countless other industries are poised for this change. New use cases for NFTs driven by TBA paves the way for more innovations. It requires a complete reimagining of how we think about ownership, identity and value on-chain.

This article will briefly introduce the history of NFT, then delve into the technical complexity behind ERC-6551, compare ERC-721 and ERC-6551, and finally summarize the current use cases, considerations and limitations of ERC-6551.

The Birth and Evolution of NFT

2017 was a big year for Ethereum as ERC-721 paved the way for the tokenization of unique digital assets and provided a new direction for the future of on-chain ownership and provenance. Riding the wave of popularity sparked by groundbreaking projects like CryptoKitties, NBA TopShot, and CryptoPunks, NFTs are quickly becoming the focus of mainstream attention.

From developers and creators to day traders, NFTs are for everyone. Before long, the NFT industry became oversaturated and marred by speculation and hype. By the end of 2022, market confidence began to weaken and began to enter a trough.

However, loyal builders and believers in NFT's underlying technology are still exploring the next "breakthrough". About a year later, the emergence of ERC-6551 breathed new life into NFT.

What is ERC-6551?

ERC-6551 is the Ethereum standard for token-bound accounts. It was deployed to the Ethereum mainnet on May 7, 2023, and was created by the Future Primitive team (Benny Giang, Jayden Windle, et al.). It makes it possible to create smart contract wallets for each ERC-721 NFT, taking composability, dynamism, and interactivity to new levels.

The proposal could be published as early as February 23, 2023.

? Benny is one of the founding team members of ERC-721 and CryptoKitties.

What is a token bound account (TBA)?

Token Bound Accounts (TBA) are wallets that can create interfaces and registries for smart contract accounts owned by ERC-721 tokens. **They are directly related to the NFT that "owns" them.

They give NFTs two important properties. The first is the "ability to own an asset", whether it is ERC-20, ERC-721 or ERC-1155. The second is "the ability to participate in community governance" (such as becoming a signer of a multisig, registering one's own ENS domain, or voting on community proposals).

The underlying mechanism of ERC-6551

Relationship between ERC-721 Token, ERC-721 Token Owner, Token Bound Account (TBA) and Registry

As mentioned earlier, **TBA is a smart contract wallet owned by a single ERC-721 NFT. **Control is in the hands of NFT holders, who have the right to perform on-chain operations through TBA.

The mechanism of ERC-6551 TBA can be divided into 3 parts:

Registration Office

The Registry performs two functions that are critical to the creation of TBAs:

1. createAcount: Use the specified address to deploy a new TBA for ERC-721.
2. account: TBA address to generate existing ERC-721 tokens.

Minimum agency contract

Each TBA is then distributed as an ERC-1167 Minimal Proxy (MPC) with immutable constant data attached to the bytecode. There are two reasons to use MPC:

1. Cheaper: No need to deploy NFT contracts multiple times, just clone the contract.
2. Less workload: Only need to deploy the proxy contract once

Account Interface

1. Define the set of functions currently available to the TBA → define the set of actions it can take.
2. Limit the ability of NFT owners to perform calls. This is critical for security purposes as it prevents unauthorized access to the TBA. On the other hand, the account interface provides a way to grant execute permissions to non-owner accounts. This is useful for multiparty TBAs.

These three parts of the ERC-6551 mechanism enable it to function as a smart contract wallet.

It preserves the primitives of ERC-721 while mitigating its limitations.

You may ask, what exactly are the limitations of ERC-6551?

ERC-721 limitations and ERC-6551 advantages

Traceability

ERC-721 ❌ only provides proof of ownership. The asset will be linked to the owner's account, but will not depict the asset's transaction history, utility, etc.

ERC-6551 ✅ Your NFT will now tell a story, including full transaction history and usefulness. It maintains its own permissionless registry and on-chain activity log. Gain valuable insights into past transactions and interactions with NFTs.

Composability

ERC-721 ❌ They exist in a vacuum, independent of any of your other assets.

ERC-6551✅ It's time to bind the two. Create an on-chain party using your NFTs and related assets such as NFTs and tokens. When you sell or transfer ERC-6551, all assets in it will be transferred out.

identity

ERC-721❌As a single asset, NFT has no identity of its own. Only the wallet counts as your "online identity".

ERC-6551✅ NFTs have their own identity and are no longer tied to the wallet that holds them. It is now the dApp of the NFT world. They're no longer just "digital collectibles," they're an extension of your digital persona.

dynamic

ERC-721 ❌ JSON metadata is static. Can't add any added value. No further customization can be applied.

ERC-721✅ allows adding assets, which means you can change the value or appearance of an NFT without changing its metadata. Hello, Changing Art NFT!

Interactivity

ERC-721❌ cannot interact with other on-chain assets.

ERC-6551✅ can own on-chain assets such as ERC20, 721 and 1155. They enhance its performance or appearance. You can bring your NFT to life with your own unique personality and story.

Source of value

ERC-721 ❌ originated from pure speculation and external and/or off-chain activities.

ERC-6551✅ It has more value due to its origin and interoperability.

Another advantage of ERC-6551 is its backward compatibility with existing Ethereum infrastructure. They are natively compatible with ERC-721 tokens, meaning they require neither new contracts to deploy nor wrappers around existing NFTs. They are also compatible with platforms and tools like OpenSea, Metamask, Etherscan, etc.

Use cases for ERC-6551

Gaming

TBA is a veritable game changer. The composability of TBA enables the creation of in-game "inventories" for individual characters. Players will be able to transfer all in-game assets into their character's "wallet", allowing for a seamless player experience and giving them full visibility into their achievements.

Community Building

Members of online communities (eg NFT projects, DAOs) will have more incentive to participate. The NFT they originally purchased, whether it was a PFP or a loyalty card, would accumulate value by collecting the associated token, NFT, or other asset.

Memberships, Loyalty Programs, Reputation Systems, On-Chain Identity

If on-chain identities consist of assets and transactions in a given wallet, TBA enables NFTs to have their own identities. They can also interact with dApps independently.

This opens up countless possibilities for loyalty programs and reputation systems. NFTs could give owners access to loyalty programs and benefits, or in the case of loans, NFTs could be a vehicle for verifiable credit ratings.

ERC-6551 Notes and Limitations

ERC-6551 will be launched soon. Despite its breakthrough technology, the road ahead remains bumpy.

❌Not all NFTs are supported

Only the encapsulated version of ERC-721 is compatible. Before starting, it's crucial to check compatibility.

❌Lack of ecosystem support

Not everyone welcomed the change with open arms. Some existing projects and platforms have not been attracted to ERC-6551. Especially those who prefer the ownerOf method*.

❌Security Risk

With great power comes great responsibility. The increased value of NFTs means they will become more attractive to hackers. To ensure stability and allow the use of higher value assets, ERC-6551 will require rigorous testing.

❌User Experience

ERC-6551 is new in the field, so it has received little feedback from users. While not difficult to understand conceptually, the feature is technically new. In order for users to understand and navigate the technical aspects of token-bound accounts, more attention needs to be paid to process and an intuitive interface.

Conclusion: Looking to the future

The first iteration of NFT is over, but its loyal supporters have been waiting for the comeback of NFT. Although there is no obvious progress in the implementation of applications, is the ERC-6551 standard leading the natural and necessary progress of digital assets?

ERC-6551 builds on ERC-721 with meaningful enhancements in functionality, ownership, and interoperability. Although still experimental, it is clear that ERC-6551 and token-bound accounts will play a key role in the development of NFTs. The digital asset landscape is approaching a new horizon. With the help of ERC-6551, a series of new functions will be enabled, which will open the door to more creativity, innovation and connection.

Note: ERC-6551 proposal details

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