The last seven days volume of the number one NFT project, BAYC was $33.47mil. Their all-time transaction currently stands at $2.47Billion dollars (as of 3rd week of March 2022, source Nonfungible.com). Total NFT sales topped for 2021 topped $17.6 billion, a 200x YoY growth. While some NFT projects reached stratospheric level, many had to bite the dust.
NFTs are cryptographic tokens. The most prominent use so far has been to hold art or other digital collectibles. The use case for NFTs goes much beyond. NFTs are increasingly being used as digital identities and as membership to a community, club and more. NFT can serve as a gate pass to virtual and IRL events. These functionalities open immense opportunities for brands, artists, athletes, celebrities, and project owners to build some amazing uses cases and engage with their fans and customers. Choosing the right blockchain and token standard that will support in delivery of the planned utilities becomes important.
What is Ethereum
Ethereum is a programable blockchain that allows users to send cryptocurrency (digital tokens) for a fee. Ethereum’s native currency is ether or ETH. Ethereum’s smart contract functionality allows applications like dApps (Finance, gaming social etc), NFTs and DAOs to be set up on Ethereum. The blockchain uses proof-of-work protocol however efforts are underway to migrate to the same to less energy intensive proof-of-stake protocol. Solidity is Ethereum’s native language.
Ethereum is the most popular blockchain at this time for deploying NFTs, and yet it was not developed for NFTs as the primary use case. However, EVM (ethereum virtual machine) makes it very easy to deploy NFTs using smart contracts. A limitation of the bitcoin blockchain.
Ethereum provides for different token standards that can be chosen based on the desired characteristics of the NFT.
ERC 721 Standard:
This is the most used token standard. This type of token is unique, and each can have different value than another token from the same smart contract.
All NFTs have a unique unit256 variable called the tokened. This token id is globally unique and that makes it non-fungible. The uniqueness can be based on age, rarity, or visual traits. The dApps can use tokenId as input and output an image which maybe a digital wearable, weapon in a game, a cryptokitty or a BAYC Ape. Each non-fungible.
ERC 20 Standard:
An ERC 20 token is the same in quantity and value as another token from the same smart contract. In real life, this is the same as dollar bills. Every one-dollar bill is the same as any other one-dollar bill and is replaceable as an equivalent. There is nothing unique. Digital currencies are ERC20 tokens. They are fungible.
ERC1155 is a multi-asset token standard that can be used to create both fungible and non-fungible tokens in the same contract. ERC1155 can do the same functions as ERC20, as ERC721 or both at the same time. ERC1155 can save on transaction costs as it makes batch processing possible avoiding the need to verify the tokens individually. This is ideal for fungible in-game currency and non-fungible collectibles.
There are other blockchains with their own token standards that are being used for NFTs and to develop their own marketplaces to help users mint and trade NFTs. When it comes to the development of a non-fungible tokens, understanding the intricacies, nuances and transaction fee structures of each alternative are import decision points to help deliver on the NFT deliverables.
The standards will continue to evolve and develop, and new ones will come into existence. A clear NFT road map can help guide important decisions.