Token standards are the programming rules used for creating tokens on the Ethereum blockchain and ERC-721 refers to the token standard for creating non-fungible tokens (NFTs).
Ethereum supports various kinds of tokens with different characteristics, which are defined using standards called Ethereum Request for Comments, or ERC. ERC standards outline the specifications for various types of Ethereum smart contracts, and each ERC has its own unique identifying number, such as ERC-721, ERC-20, and more.
Each ERC starts as an Ethereum Improvement Proposal (EIP), which is a draft of the document open for feedback to anyone in the developer community. EIPs can cover various types of changes to Ethereum protocol up to and including entire network upgrades, but EIPs specifically relating to smart contract and token standards become ERCs once they have gone through the process of review and implementation.
Each type of token has its own ERC with ERC-721 being the most common standard for non-fungible tokens (NFTs). In contrast to fungible tokens (often represented by the ERC-20 standard) where tokens of the same type are interchangeable for another, each NFT is a unique asset which cannot be exchanged like-for-like with another NFT. A common analogy is that dollar bills are fungible, whereas a house is non-fungible.
History of ERC-721
The ERC-721 was drafted as EIP-721 in January 2018 and was authored by a team of four Ethereum developers. The EIP presented the specification for a standard interface for non-fungible tokens, and lists some of the types of digital assets that NFTs can represent. These included physical property (such as houses or artwork), assets (such as loans that cannot be represented as positive token balances), and virtual collectibles (such as unique pictures of kittens).
The last reference is to the decentralized game CryptoKitties developed by one of the team members behind EIP-721. The game was created using a beta version of the ERC-721, and, by the time EIP-721 launched, CryptoKitties had gone viral and was already the most popular decentralized application on the Ethereum blockchain. Its success provided compelling proof of concept for a full implementation of ERC-721.
Due to the early promise of NFTs, the OpenSea NFT marketplace went live several months before Ethereum developers had approved the formal implementation of ERC-721 in June 2018.
It took another two years before NFTs began to gain more widespread popularity. In 2021, NFTs became mainstream headlines when digital artist Beeple sold his collection “Everydays” via Christie’s for over $69 million, a new record sum for work attached to the ERC-721 standard. Art and collectibles now account for a substantial proportion of ERC-721 transactions, along with play-to-earn and metaverse dapps.
ERC-721 – a launchpad for NFT technology
The introduction of ERC-721 has undoubtedly been one of the biggest advancements in the digital asset space, broadening the use cases for blockchain technology beyond the bounds of cryptocurrencies and fintech to include unique areas such as art, collectibles, and gaming. As the range of use cases and popularity among users broadened, other blockchains and platforms, including Solana, Polygon, and Avalanche, have incorporated support for NFTs through ERC-721 compatibility or alternative NFT token standards.
Although ERC-721 represented a significant leap forward in the potential scope of Ethereum applications, its design has some inherent limitations, such as the inability to conduct batch transfers. If someone wishes to send ten NFTs based on the ERC-721 standard, it would require ten separate Ethereum transactions since each NFT is an independent smart contract. This results in increased gas fees and network traffic, potentially leading to network congestion.
Such limitations have led developers to create additional NFT token standards with more flexibility and features. One such example is ERC-1155, developed by the team behind Enjin. ERC-1155 enables the creation of any number of NFTs under a single smart contract and allows batch transfers of NFTs.
ERC-1155 also supports semi-fungibility, allowing a token to have both fungible and non-fungible properties. For instance, a semi-fungible token could be used as an event ticket, where any ticket is exchangeable on an equal basis for another prior to the event. After the event, the ticket no longer has its presale fungible value and takes on the properties of an NFT – a digital item of memorabilia with a unique ID number.
As NFT technology and use cases develop, newer standards are beginning to enable dynamic features such as programmability to potentially provide greater utility in areas such as digital identity and data sovereignty in the future.
ERC-721 essentials
- ERC-721 is the first Ethereum token standard for non-fungible tokens (NFTs).
- CryptoKitties was the first application to use ERC-721 in 2017, launching a new class of unique digital assets covering art, collectibles, and gaming.
- Since ERC-721 was first implemented, NFT technology has evolved to enable new features such as semi-fungibility.