The NFT market is experiencing a resurgence in 2023 after a period of decline and stagnation in late 2022. I see a bounce back right now as we speak. Most of us will think that Ethereum dominates the NFT space. But according to various online platforms, the last 24 hour NFT sale volume leader is Bitcoin. Bitcoin has the most amount of sales at $33,269,180, and Ethereum is second at $8,701,553. At the same time, the recently hyped Solana is not in the third place with $2,699,854.
What is driving this renewed interest and activity in the NFT space? And what are the next trends and innovations that will shape the future of NFTs and Web3?
One of the main factors behind the re-rising of the NFT market is the introduction of a new token standard for NFTs: ERC-6551. This standard, proposed by Future Primitive, a team of experienced NFT developers and enthusiasts, aims to enhance the functionality and value of NFTs by giving them smart contract capabilities. ERC-6551 tokens, also known as token-bound accounts (TBAs), function as smart contract wallets that can hold tokens and other NFTs, as well as interact with other smart contracts and applications. Each TBA is permanently bound to a single ERC-721 NFT, and the control of the TBA is granted to the holder of that NFT. This means that every NFT can have its own on-chain identity and agency without requiring any changes to existing NFT smart contracts or infrastructure.
ERC-6551 opens up a whole new world of possibilities for NFTs, as they can now evolve and change over time based on external factors or user inputs. For example, an NFT representing a character in a role-playing game can accumulate assets and abilities based on their actions, or an NFT representing a piece of art can generate royalties for the artist or the collector. It also enables new use cases and business models for NFTs, such as:
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Composability: TBAs can own and compose other TBAs, creating complex and dynamic NFTs that can represent real-world assets or concepts. For instance, an NFT representing a car can own and compose other NFTs representing its parts, such as the engine, the tires, or the paint. This way, you can easily check where the car came from and who owned it before, as well as change or improve it as you wish. Or, a TBA that looks like a portfolio can have other TBAs inside it that look like different investments, such as stocks, bonds, or cryptocurrencies. This way, you can easily manage and diversify your money, as well as adjust or sell it as you need. TBAs are not just simple pictures or videos but complex and dynamic NFTs that can represent real-world assets or concepts.
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Identity: TBAs can act as verifiable and portable identities for their owners, as they can sign messages and verify signatures on behalf of the NFT. This allows for seamless and secure access to various Web3 applications and services, such as decentralized exchanges, social networks, or gaming platforms. For example, an NFT representing a membership card can grant access to an exclusive club or community and record a history of past interactions. Similarly, an NFT representing a diploma or a certificate can prove the credentials and achievements of the owner, as well as provide feedback or endorsements.
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Provenance: TBAs can track and record the history and ownership of the NFT, as well as the interactions and transactions that have occurred with it. This allows for increased transparency and trust in the NFT market, as well as the possibility of creating value-added features or services for the NFT. For example, an NFT representing a rare collectible can show the origin and rarity of the item, as well as the previous owners and prices. An NFT representing a digital artwork can show the creation and modification process of the artist, as well as the appreciation and criticism of the audience.
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Dependency: Think about how you can create and collect digital items that are not only unique and valuable but also connected and responsive. These items are called TBAs, and they are a new kind of NFTs that can do amazing things on the blockchain. For instance, a TBA that looks like a plant can have a relationship with other TBAs that look like the soil, the water, or the sunlight. This way, you can see and feel how the plant grows and changes and take care of or use it. Or, a TBA that looks like a social movement can have a relationship with other TBAs that look like the supporters, the opponents, or the media. This way, you can understand and experience what the movement is about, as well as join or change it. TBAs are not just static pictures or videos but interrelated and interactive NFTs that can represent dynamic and emergent phenomena or systems.
These use cases and business models are just some of the examples of how ERC-6551 can revolutionize the NFT space and Web3. However, ERC-6551 is not without its challenges and limitations. Some of the potential issues and risks that need to be addressed are:
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Fraud Prevention: TBAs can be used to create fake or fraudulent NFTs, as they can mimic or impersonate other NFTs or TBAs. This can lead to confusion and deception in the NFT market, as well as the possibility of losing money or reputation. For example, a TBA representing a fake artwork can copy or modify the metadata or the image of a genuine artwork and try to sell it as the original. Likewise, a TBA representing a fake identity can copy or modify the signature or the message of a genuine identity and try to access or use its privileges or resources.
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Ownership Cycles: TBAs can create ownership cycles, where an NFT owns itself or another NFT that owns it. This can lead to paradoxes and inconsistencies in the NFT market, as well as the possibility of losing control or access to the NFT. For illustration, a TBA representing a self-owning NFT can transfer itself to another owner and then transfer itself back to itself. In the same way, a TBA representing an NFT that owns another NFT that holds it can transfer the other NFT to another owner and then lose its ownership.
These challenges and limitations are not insurmountable and can be mitigated or solved by various methods and techniques, such as:
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Verification: TBAs can be verified by checking the source and the authenticity of the NFT and the TBA, as well as the validity and the integrity of the metadata and the image. This can be done by using various tools and services, such as NFT scanners, NFT validators, or NFT oracles. Again, citing an example, a TBA representing a genuine artwork can be verified by scanning the NFT and the TBA, and comparing them with the original artwork and the artist. A TBA representing a genuine identity can be verified by validating the NFT and the TBA, and checking them with the credentials and the achievements of the owner.
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Governance: TBAs can be governed by setting and enforcing rules and policies for the creation and management of the NFT and the TBA, as well as the interactions and transactions that can occur with them. This can be done by using various mechanisms and protocols, such as NFT standards, NFT registries, or NFT DAOs. For example, a TBA representing a self-owning NFT can be governed by following the ERC-6551 standard and registering the NFT and the TBA in the ERC-6551 registry. Similarly, a TBA representing an NFT that owns another NFT that owns it can be governed by joining an NFT DAO and following its rules and policies.
In conclusion, ERC-6551 is a new token standard for NFTs that gives them smart contract capabilities, allowing them to own assets and interact with applications without requiring changes to existing smart contracts or infrastructure. This enables new use cases and business models for NFTs, such as composability, identity, provenance, and dependency.
Yet, the horizon of ERC-6551 is not bereft of challenges and limitations. Issues surrounding fraud prevention and ownership cycles within TBAs pose intricate obstacles to address and overcome. Fraudulent activities leveraging TBAs to mimic genuine NFTs or generate ownership paradoxes in cycles necessitate thorough solutions. These hurdles aren't insurmountable. Verification mechanisms and governance protocols stand as potential solutions, verifying TBAs' authenticity and setting robust governance rules to navigate and resolve these complexities.
In the ever-evolving landscape of NFTs and Web3, ERC-6551 beckons us to a frontier where digital assets transcend static representations to become vibrant, interactive entities. It prompts us to question traditional paradigms and heralds a new era where ownership, identity, and interaction with digital assets metamorphose into fluid, dynamic experiences.
As we journey further into this transformative realm, may we embark with a curious mind, exploring the uncharted territories of ERC-6551's impact, unraveling the mysteries, and shaping a thought-provoking future for NFTs and Web3.