Non-Fungible Token (NFT) Standards — Overview
NFTs are on the rise. Currently, users who are interested in non-fungible tokens mostly consider them to be crypto tokens that contain digital art or cryptocurrency development company. In the near future, NFT development will change the way we create, distribute and consume digital content. NFT business use cases will include several DRM (Digital Rights Management) use cases.
Understanding NFTs and the token standards that underlie this phenomenon will help users understand the nuances of each type of NFT and the various blockchain protocols involved. Since Ethereum’s ERC721 was the first NFT standard available, several consumer applications are built on top of it. Digital users and artists who mint or create NFTs through third-party websites are sometimes unaware of the exact token standard or blockchain they are using to issue a new NFT.
The original non-fungible token standard was the ERC721 built on top of Ethereum. Ethereum was the pioneer in this space and remains the most widely used blockchain platform for creating and launching NFTs. However, the Flow and Tezos blockchain protocols are rapidly catching up and will likely overtake Ethereum in the near future.
Transactions on all blockchain platforms have a cost associated with them, usually a negligible amount. Transactions on Ethereum are processed in ‘gas’. When Ethereum was created, the gas was pegged to the price of ETH on the open market, the founders did not expect the price of ETH to rise to the point where it would become prohibitive to transact on the platform. At the time of this writing, it costs more than $80 to create an NFT using the ERC721 standard on Ethereum.
The native language of Ethereum is Solidity. Ethereum has also started with the proof-of-work consensus mechanism and plans to switch to the proof-of-stake consensus mechanism.
ERC 721 standard
The most widely used standard token that started it all. ERC721 tokens are not fungible; each token is unique and can be traded independently. This is why unique digital assets, such as an artist’s digital art creation, can be stored in such a token. Each token is unique and cannot be destroyed or duplicated. Each token can be considered a collector’s item based on the uniqueness and rarity of its properties. This was the first non-fungible token standard to be created.
ERC 998 and ERC 1155 standards
Two notable non-fungible token standards on Ethereum that are not as commonly used as the ERC721 standard are the ERC998 and ERC1155 standards.
ERC998 tokens are similar to ERC721 tokens in that they are both non-fungible. ERC998 tokens are also ‘composable’, meaning that the assets within this type of token can be composed or organized into complex positions and traded through a single transfer of ownership.
An ERC998 token can contain unique non-fungible tokens (such as ERC721) as well as uniform fungible tokens (such as ERC20). The ERC 998 token can be valued and traded. Since the ERC998 token can hold a single set of digital assets, it can be considered as a portfolio of assets or as a holding company for a diverse set of assets.
This token standard was developed with gaming in mind where fungible tokens could represent a transactional currency in a game and non-fungible items could represent in-game collectibles and in-game tradable assets.
Many other token standards like ERC 1190 that offer flexible and complex NFTs to create have been proposed and are waiting to be approved by the Ethereum governance committee.
To understand Flow, we need to start with Cryptokitties. It was launched using ERC721 tokens. It became so popular that it clogged the Ethereum blockchain network.
The team behind the game (Dapper Labs) set out to solve this problem and in the process created Flow; a blockchain that was designed with gaming and crypto collectibles in mind. Dapper Labs also created NBA Best Shot — which is a very popular NFT-based digital collectibles platform. Flow uses the proof-of-stake consensus mechanism.
Smart contracts on the Flow network are written in Cadence; Flow language. The flow allows “ Upgradable Smart Contracts “, ie. smart contracts that can be implemented in a ‘beta state’ and then gradually updated by the original authors until they are satisfied.
Users will be notified that this smart contract is not yet finalized and they can choose to wait until it is complete before trusting it. Once the original authors of the smart contract are satisfied with their code, they can irrevocably release control and it becomes immutable from then on. Flow has been designed to scale.
Tezos is a Decentralized blockchain that uses the liquid-proof staking consensus mechanism. Tezos has a native cryptocurrency called Tez. The creators of the platform recognize that transaction fees need to be low for wide adoption and ease of use. Tezos has three main token standards of which only FA2 is non-fungible.
The FA2 Token Standard, also known as TZIP-12, is a unified token contract interface that supports a wide range of token types, such as fungible, non-fungible, non-transferable, and multi-asset contracts.
It gives developers a lot of flexibility to define and invent new types of tokens that can support complex token interactions while maintaining a standard API for external apps and wallets. These token structures can include NFTs and contain many different game elements with transmutable and interactive features.
While Ethereum was the first blockchain platform with NFT capabilities, it was not created specifically for NFT. Platforms like Flow and Tezos were built with an NFT-first attitude. There is no doubt that there will be more NFT standards to choose from in the near future.