Non-Fungible Tokens (NFTs) have captured the imaginations of collectors, investors, and tech enthusiasts alike, and if your interest in NFTs and blockchain technology is growing, you will want to learn more about NFT standards. However, before you read more, if you aren’t familiar with NFTs and want to learn more about them, we suggest starting with our NFT development article. This piece will give you the background information to understand some of the technicalities we cover in this post.
While investors and collectors are excited about the early popularity of digital collectibles, NFTs represent the future of blockchain technology. They will likely completely change the way digital content is created, distributed, and consumed. In addition, businesses will be able to use NFTs in several ways regarding Digital Rights Management (DRM).
Businesses must take the time to understand NFTs and their underlying standards to position themselves and make competitive business decisions. So let’s take a deeper dive into this exciting topic.
Understanding NFT Standards
The term standards describe the underlying principles that allow a technology to function seamlessly. NFT standards describe how to build Non-Fungible Tokens on a particular blockchain protocol. Ethereum was the first blockchain protocol to create and launch NFTs.
Today, Ethereum is still the most widely used blockchain platform for NFTs. However, Flow and Tezos are two blockchain platforms gaining ground on Ethereum in the NFT space. Experts believe that these two blockchain platforms will overtake Ethereum shortly. While Ethereum is arguably the second most popular blockchain after Bitcoin, competitors will likely overtake Ethereum in the NFT market because of associated transaction fees.
Whether trading cryptocurrency or buying NFTs, all blockchain transactions have an associated transaction fee. In most cases, this transaction fee is insignificant. Ethereum transactions are processed in “gas.” “Gas” is linked to the price of Ethereum on the open market. The market price of Ethereum has risen astronomically since its creation. As a result, associated transaction fees on the Ethereum platform are becoming prohibitive for many creators, buyers, and investors.
Still, Ethereum remains the dominant force in NFT creation and sales. So let’s explore the top NFT standards driving the market currently.
Ethereum – ERC-721
ERC-721 is the token standard that started it all, and it remains the most popular, widely used NFT standard to this day. ERC-721 is a free, open token standard that describes how to build NFTs on the Ethereum platform. Every ERC-721 token is unique and can be priced independently of other tokens. For this reason, many digital artists choose to use ERC-721 tokens for their creations. Besides being unique, ERC-721 tokens cannot be destroyed or duplicated.
The ERC-721 token standard was developed to standardize NFTs. As a result, a new dawn of digital content, games, and applications has risen. Without the ERC-721 standard, the world wouldn’t have Decentraland or CryptoKitties.
The Other Ethereum Standards
Ethereum is one of the most popular blockchains globally. It is used in FinTech and HiTech applications, and its associated cryptocurrency is the second most valuable after Bitcoin. Therefore, it is only natural that there will be other NFT standards on the Ethereum blockchain that serve a wide range of purposes. Besides ERC-721, the other two Non-Fungible Token standards used on the Ethereum blockchain are ERC-998 and ERC-1155.
ERC-998 tokens are non-fungible, just like ERC-721 tokens. However, ERC-998 tokens are composable as well. ERC-998 tokens can be organized into complex digital assets and valued, traded, or sold as one entity. The ERC-998 token standard can hold various Non-Fungible Tokens, like the ERC-721, and fungible tokens, such as the ERC-20. Think of the ERC-988 token as a unique portfolio of digital assets. People use these NFTs to organize their digital assets in a single place.
ERC-1155 tokens allow users to register fungible tokens and Non-Fungible Tokens in the same smart contract. This token standard was written primarily with gaming in mind. Fungible tokens, such as in-game currency, are often used to purchase NFTs, such as in-game items and other digital collectibles.
The Flow blockchain protocol started like many of the Internet’s finest innovations, with cats. More specifically, Flow started because of the popular game CryptoKitties, an NFT-based game that gives users the ability to breed, buy, sell, and trade digital cats. Like all cat-related Internet content, CryptoKitties became widely popular. As a result, CryptoKitties single-handedly clogged the Ethereum blockchain network with trades and sales.
The creators of CryptoKitties went to work on fixing this issue, and in the process, they created Flow. Flow is a blockchain network designed explicitly for digital collectibles and games. Flow employs the proof-of-stake consensus model on their blockchain. The innovation from Flow is its “Upgradeable Smart Contract.” This type of smart contract allows the agreement’s authors to update it or incrementally improve it over time. Once all parties involved with the smart contract are satisfied, it is finalized and becomes immutable.
Flow is scalable. The popularity of this blockchain has been growing. Not only does Flow power CryptoKitties, but it is also used by the trendy NFT marketplace NBA Top Shot.
Tezos is a decentralized blockchain. This blockchain employs a liquid-proof stake consensus model, and it has a native cryptocurrency called Tez. The creators of Tezos understand that high transaction fees drive creators and buyers away. Tezos has a single Non-Fungible Token standard called FA2.
FA2 can support a variety of token types, including fungible, non-fungible, and multi-asset contracts. FA2 gives developers the ability to create their own tokens and supports complex token interactions. In addition, FA2 supports a standard API for external wallets, games, and applications. FA2 tokens can include NFTs and other interactive, transmutable gaming items.
At the moment, Ethereum remains the dominant force in the NFT market. However, that is rapidly changing. If you want to learn more about NFT development, creating an NFT marketplace, or other app development topics, reach out to an app development partner. A partner can help you understand the NFT standards best suited for your project.