Embrace the mass adoption with ERC-6551

Non-fungible tokens (NFTs) have quickly emerged as a significant force within the blockchain ecosystem, especially on Ethereum, which is the main one for creating and trading digital assets.

Although the concept has been around for a few years, it gained great attention in 2020 and 2021, contributing to what many have called a speculative bubble in the market. 

This boom has led to continuous innovations and developments in the industry, including the creation of new standards such as ERC-6551, which aims to improve the functionality and flexibility of NFTs in the Ethereum ecosystem.

ERC-721 vs ERC-6551

The ERC-721, introduced as a standard for non-fungible tokens (NFT) on Ethereum, has laid a solid foundation for the creation and trade of unique digital assets, in fact, this standard allows each token to have distinct metadata and attributes that differentiate them from one another, opening up possibilities for use in digital art, collectibles and more.

However, the widespread ERC has many limitations, which is why the Ethereum community is developing new frontiers: 

Limited functionality: ERC-721 tokens are basically static. They represent ownership of a unique asset, but lack dynamic capabilities. They cannot interact with other smart contracts or hold additional assets.

Lack of composability: In the context of the ERC-721 standard, each NFT operates independently, without the ability to create complex structures or allow the incorporation of additional utilities.

Absence of on-chain activity: The owner of an ERC-721 NFT cannot initiate on-chain actions on its behalf, limiting the extent to which the token can be used in broader Ethereum ecosystem activities.

The ERC-6551 standard seeks to address these limitations by introducing Token-Bound Accounts (TBAs), a dedicated account for non-fungible tokens (NFTs) that stores the essential information and distinguishing characteristics of each digital asset in a secure and organised manner.

Here are some advantages of the ERC-6551 standard:

Dynamic NFTs: The TBA feature allows NFTs to be more than just static representations of unique assets. They can hold additional assets, interact with other smart contracts and participate in broader activities on the chain.

NFT identity on the blockchain: The introduction of ERC-6551 gives a new dimension to the identity of non-fungible tokens (NFTs) on the blockchain, which can now establish a full-fledged presence on the chain, leading to the creation of unique identities and reputations that are indelibly inscribed, uniquely linked to the asset holder.

Intuitive asset management: The ERC-6551 standard is also a breakthrough because it introduces a level of asset management never seen before, in fact, through the creation of token-linked accounts (TBAs),it allows for the incorporation of different types of assets, including other non-fungible tokens (NFTs), within a single TBA, this crucial advancement simplifies digital asset management by offering a consolidated view and point of interaction for different asset classes, also facilitating their transfers. 

Compostability: The introduction of ERC-6551 and token-bound accounts (TBAs) represents a profound transformation of non-fungible token (NFT) use cases. The gaming industry could experience greater complexity, with TBAs enabling distinct assets to be owned within the game, as well as in finance, where NFTs could be used as collateral, promoting new lending practices and fractional ownership possibilities. 

Furthermore, the composability feature of ERC-6551 can support intricate ownership structures, such as in real estate, where the main digital asset could have the direct correlation of its Digital Sub-Assets (assets directly related to the main one), opening new horizons in asset representation and ownership in a decentralized context.

ERC-6551 use case

The concept of modularity provided by the ERC-6551 standard can be exploited to bring a dynamic level of gamification to different sectors, one of which is luxury. 

Imagine a luxury brand creating a series of limited edition items, e.g. watches, bags, shoes or accessories, where each of these items is linked to an NFT, with its unique attributes and provenance stored on the blockchain via token-bound accounts (TBAs).

The brand could then introduce a gamification aspect, in which owning certain combinations of items or collecting specific sets of NFTs could unlock exclusive benefits for the owner, (early access to new collections, VIP invitations to brand events, personalised services or even the opportunity to collaborate on the design of a unique item).

Each NFT could also accumulate 'experience points' or 'reputation points' over time, based on factors such as length of ownership, frequency of use or participation in brand initiatives, creating in video game in which the more a customer participates in the life of the brand, the more benefits they receive written into the NFT's history. 

In this scenario, blockchain provides an immutable and transparent way to track and verify the ownership of NFTs and, at the same time, the modularity of ERC-6551 allows these NFTs to interact with each other and the wider brand ecosystem, creating an engaging and dynamic experience for the luxury consumer.

Integration with Digital Product Passport

The concept of Token-Bound Accounts (TBAs) in the ERC-6551 standard could potentially play a crucial role in accelerating the mass adoption of Digital Product Passports (DPP).

DPP is critical for improving transparency and traceability in supply chains and is particularly important in industries such as fashion, food, electronics, and automotive.

A TBA can serve as a Digital Product Passport for a product in the form of an NFT. When an NFT is created for a product, product data can be stored in the associated TBA, with the data remaining on the blockchain, providing an immutable, transparent and accessible record of the product's history and characteristics.

For example, a luxury watch might have an NFT and its TBA could store data on the watch's materials, origin, previous owners, maintenance history, etc. so that when the watch is sold, ownership of the NFT is transferred and the new owner can easily access all this information.

This leads to another key issue for the digital product passport to spread, composability. 

For example, if a product consists of multiple components (Assets and Sub-assets), the digital identity of the final product could be the sum of all the components. This would create a hierarchical structure of PLRs, which could provide a more complete and detailed view of complex products.

Another point, which will be key to creating customer engagement systems, the integration of digital product passports (DPPs) in the form of Token-Bound Accounts (TBAs) allows NFTs to interact with smart contracts and other blockchain-based systems, opening up the possibility of verifying product data immediately, automating processes based on product lifecycle events, and engaging consumers in initiatives that promote responsible product stewardship.

Therefore, the TBA concept in ERC-6551 could make DPPs more versatile, interactive, and integrated with the broader digital ecosystem, which could significantly increase their adoption.