The introduction of token bound accounts (TBAs) with ERC-6551 unravels a new paradigm. Any single non-fungible token (NFT) can now transcend its traditional role as a mere digital asset to a fully functional wallet.
The implications of this technological breakthrough extend far beyond the realm of just art and digital collectibles. Industries such as trading, gaming, and countless others are poised to embrace this transformative shift. The new use cases of NFTs allowed by TBAs, pave the way for even more innovation. It requires a complete reimagining of how we perceive on-chain ownership, identity, and value.
In this article, we start from the very beginning, with a brief history of NFTs. We then delve into an exploration of the technical intricacies underlying ERC-6551, and complement it with a side-by-side comparison of ERC-721 and ERC-6551. To conclude, we reflect on the use cases, caveats and limitations of ERC-6551 in the present day.
The Birth and Demise of NFTs
The year 2017 was a big one for the world of Ethereum. ERC-721 paved the way for the tokenization of unique digital assets, and offered a novel glimpse into the future of on-chain ownership and provenance. NFTs surged into the mainstream spotlight, riding the wave of popularity ignited by groundbreaking projects like CryptoKitties, NBA TopShot, and CryptoPunks.
From developers, to creators to day traders — NFTs were for everyone. It wasn’t long after until the NFT industry became oversaturated, undermined by speculation and hype. Alas, in late 2022, confidence began to dwindle and market-correction had started to take its course.
The most loyal builders and believers of the underlying technology of NFTs remained to search for the next ‘move’. Almost 1 year later, ERC-6551 emerged to breathe life back into NFTs.
What is ERC-6551?
ERC-6551 is the Ethereum Standard for token bound accounts. It went live on the Ethereum Mainnet on May 7, 2023* and was created by the team at Future Primitive (Benny Giang, Jayden Windle, and more). It made possible the creation of a smart contract wallet for every ERC-721 NFT, ushering in a new level of composability, dynamism and interactivity.
The initial proposal was posted on February 23, 2023.
💡 Benny was on the team that founded ERC-721 and CryptoKitties.
What are Token-Bound Accounts (TBAs)?
Token Bound Accounts (TBAs) are wallets that enable the creation of an interface and registry for smart contract accounts owned by ERC-721 tokens. They are directly linked to the NFTs that ‘own’ them.
They give NFTs two important properties. The first, is “the ability to own assets ,”— whether they are ERC-20, ERC-721s or ERC-1155s. The second is the “ability to participate in social governance,” (e.g. be a signer of a multisig, register its own ENS domain, or vote on community proposals).
The Underlying Mechanism of ERC-6551
As mentioned, TBAs are smart contract wallets owned by a singleERC-721 NFT. The control, however, falls into the hands of the NFT holder. They have the power to execute on-chain actions through the TBA.
The mechanism of an ERC-6551 TBA can be broken up into 3 parts:
The Registry runs 2 functions crucial for the creation of the TBA:
- createAcount: deploys a brand new TBA for an ERC-721 using a specified implementation address.
- account: computes a TBA address for an existing ERC-721 token.
Minimal Proxy Contracts
Every TBA is then distributed to the world as an ERC-1167 minimal proxy (MPC), complete with immutable constant data tacked onto the bytecode. MPCs are used for two reasons:
- Cheaper: Instead of deploying NFT contracts multiple times, you can simply clone contracts.
- Less work: You will only need to deploy the proxy contract once.
- Defines a set of functions currently available to the TBA → Defines the set of actions it can take.
- Allows limitations of the NFT owner’s ability to execute calls. This is crucial for security purposes as it may prevent unauthorized access to the TBA. On the flip side, the account interface provides a way to grant execution permissions to non-owner accounts. This is useful for multi-party TBAs.
These 3 parts of the ERC-6551 mechanism are what allows for it to act as a smart contract wallet.
It maintains the primitives of ERC-721s while mitigating its limitations.
What exactly, you ask, are these limitations? 🤔
ERC-721 Limitations & ERC-6551 Strengths
ERC-721 ❌ Only provides proof-of-ownership. The asset will link to the owner’s account, but does not paint a story of the asset’s transaction history, utility etc.
ERC-6551 ✅ Your NFTs now tell a story, incl. complete transaction history and utility. It maintains its own permissionless registry and log of on-chain activity. Gain valuable insights into your NFT’s past transactions and interactions.
ERC-721 ❌ They exist in a vacuum and are independent of any of your other assets.
ERC-6551 ✅ It’s time to bundle up. Create an on-chain party with your NFTs with related assets e.g. NFTs and tokens. When you sell or transfer your ERC-6551, all the assets within it go for the ride.
ERC-721 ❌ As singular assets, NFTs had no identity of their own. Only wallets would count as ‘online identities’.
ERC-6551 ✅ NFTs get their own identity — and are no longer tied to the wallets that hold them. It’s a dApp to NFT world now. They are not longer just ‘digital collectibles’ — they’re extension of your digital persona.
ERC-721 ❌ JSON metadata is static. No additional value can be added. No further customization can be applied.
ERC-6551 ✅ Allows the addition of assets, meaning you can change the value or appearance of an NFT without altering its metadata. Hello evolving art NFTs!
ERC-721 ❌ Cannot interact with other on-chain assets.
ERC-6551 ✅ Ability to own on-chain assets like ERC20, 721 and 1155. They enhance its performance or appearance. You bring your NFT alive with its own unique personality and story.
Source of Value
ERC-721 ❌ Derived from pure speculation and external and/or off-chain activities.
ERC-6551 ✅ It has more value due to its provenance, and ability to interact.
Another strength of ERC-6551 is its backward compatability with existing Ethereum infrastructure. They are natively compatible with ERC-721 tokens, meaning they do not require neither new contract deployments nor the wrapping of NFTs. They are also compatible with platforms and tools such as OpenSea, Metamask, Etherscan.
Use Cases of ERC-6551
TBAs are literal game-changers. The composability of TBAs enables the creation of in-game “inventories” for individual characters. Players will be able to transfer all in-game assets to the character’s ‘wallet’, resulting in a seamless player experience and giving them a holistic overview of their achievements.
There will be more incentive for members of online communities (e.g. NFT projects, DAOs) to participate. Their initial NFT purchase, whether a PFP or membership card, will accrue value due to collecting related tokens, NFTs or other assets.
See it in action with Sapienz #3305
Memberships, Loyalty Programs, Reputation Systems, On-chain Identities
If an on-chain identity is made up of assets and transactions in a given wallet, TBAs give NFTs the ability to have an identity of their own. They can also interact with dApps independently.
This opens up countless possibilities for loyalty programs and reputation systems. NFTs could grant owners entrance and perks to a loyalty program, or in the case of lending, NFTs could be a vehicle for verifiable credit ratings.
ERC-6551 Caveats and Limitations
It’s been less than 1 month since ERC-6551 went live on mainnet. Despite its groundbreaking technology, it has a rocky road ahead.
❌ Not All NFTs are supported
Only wrapped versions of ERC-721 are compatible. Before getting started, it’s crucial to check compatability.
❌ Lack of Ecosystem Support
Not everyone welcomes change with open arms. Some existing projects and platforms are not quite enchanted by ERC-6551 yet. Especially those that are fans of the ownerOf method*.
❌ Security Risks
With more power, comes more responsibility. The increased value of NFTs will mean that they will become more attractive for hackers to attack. To ensure stability and allow the use of higher value assets, ERC-6551 will require rigorous testing.
❌ User Experience
Without much tenure in the space, ERC-6551 has very little feedback from users. While not conceptually difficult to understand, the functionality is technologically new. For users to comprehend and navigate the technical aspects of token-bound accounts, it will require more attention in processes and intuitive interfaces.
Concluding Remarks: Looking Forward
The boom is long gone, but faithful proponents have been waiting for NFTs to make a comeback. While not obvious, could it be that the ERC-6551 standard is ushering in a natural and necessary progression of digital assets?
ERC-6551 built upon the foundations laid by ERC-721s, and implemented meaningful enhancements in functionality, ownership and interoperability. Although still experimental, what is clear is that ERC-6551 and token bound accounts will play a pivotal role in the evolution of NFTs. The digital asset landscape is approaching a new horizon. With the range of new capabilities allowed by ERC-6551, more doors for creativity, innovation and connection will be opened. We can't wait to see what you'll build.
Disclaimer: The above article is a compilation of various information sources available at the time of writing. ERC-6551 is a new standard that has yet to be explored, tested and studied. The given information may change or evolve as the the standard matures.