What is ERC-6551?
ERC-6551 is the Ethereum standard for token bound accounts, which creates a smart contract wallet for every ERC-721 NFT. This allows ERC-721 tokens to own assets and interact with apps without changing to existing ERC-721 smart contracts or infrastructure.
ERC-6551 is a significant upgrade over ERC-721 as it addresses the limitations of the ERC-721 standard and expands the possibilities of NFTs. ERC-6551 is still under development, however it has the potential to revolutionize the future of NFTs. By providing NFTs with more functionality, ERC-6551 can make them a more valuable and useful asset.
Benefits of ERC-6551
Enhance NFT functionality: ERC-6551 NFTs can now hold other assets, interact with smart contracts, and have their own on-chain identity. This brings more use cases to NFTs and makes them more valuable.
Improve security: Token-bound accounts are more secure than traditional wallets because they are protected by smart contracts. This makes them even more secure to store NFTs.
Enhance interoperability: ERC-6551 NFTs can be used across multiple platforms and applications. This makes them more flexible and accessible to a wider range of users.
ERC-6551 use cases
ERC-6551 opens a revolution in the NFT space, providing users with useful applications in the Web3 and NFT space. Here are some use cases of the ERC-6551:
Intuitive asset management: ERC-6551 NFTs can be used to store NFTs and other tokens. If you sell or transfer the ERC-6551 NFT, every asset in it will be transferred as well.
DeFi apps: ERC-6551 NFTs can be used to create NFT-based lending protocols or allow users to stake NFTs to earn rewards.
Smart contract interaction: ERC-6551 NFTs can be used to interact with smart contracts. This can be used to create games based on NFTs or allow users to vote on proposals using their NFTs.
On-chain identity: Token bound accounts unlock the possibility of NFTs owning wallets and all related assets, creating full on-chain identities and reputations. This enables the development of behavioral economics-driven airdrops, loyalty programs, and efficient lending protocols, among other identity-based use cases.
Composability: ERC-6551 allows NFTs to be combined with each other or with other assets to create new and unique digital products. This can be used to create NFT-based artwork, music or games.
Gaming: Token bound accounts empower game developers to create inventories for players, automatically transferring game-related assets into their character’s wallets. This improves the user experience and enables more interactive in-game features, enhancing the immersion and value of in-game assets.
Challenges and limitations of ERC-6551
Lack of support: Currently, the ERC-6551 standard is not yet widely supported by NFT platforms and markets. This means that users interested in the ERC-6551 NFT may be limited in their choice of use.
High fees: Creating and minting ERC-6551 NFTs can be more expensive than traditional ERC-721 NFTs. This is because the ERC-6551 NFT requires the creation of a new smart contract account, which may require fees and resources to deploy.
Difficult to integrate across platforms: Some NFT platforms may not be keen or able to integrate with the ERC-6551 standard, either due to technical difficulties or business reasons. So ERC-6551 NFTs may not be immediately available to all collectors and creators.
Security: ERC-6551 NFTs can own assets and interact with applications, which means they become more attractive targets for hackers trying to exploit vulnerabilities or loopholes.
Despite many infrastructure challenges as well as security issues, ERC-6551 is still considered an important step forward for NFTs, making NFTs more useful to Web3 users instead of simply an asset used for transactions.