ERC 721 Token Explained

An instrument of NFTs, ERC-721 is a token standard on the Ethereum blockchain. As it represents unique digital or physical assets, it is also known as the NFT standard. 

Key Takeaways

• ERC-721 is a token standard on the Ethereum blockchain. As they represent unique digital or physical assets, they are also known as NFT standard.

• ERC-721 token standard made it possible for users in the crypto space to have digital ownership of rare collectables which possess unique value.

• The ERC-721 token standard went viral in 2020 and early 2021.

The ERC-721 token standard went viral in 2020 and early 2021. During those periods, various non-fungible token (NFT) creators on the Ethereum blockchain were minting out various collections of NFTs which sold at different price points depending on their rare value.

Among these NFTs which exploded in popularity were Pudgy Penguins (which is considered the most valuable and traded NFTs), Bored Apes Yacht Club (BAYC), Moonbirds, etc. which sold for millions of dollars for 1 NFT. Non-fungible tokens might not be that loud in the crypto space anymore, but the ERC-721 smart contract standard has evolved and taken a better form.

The ERC-721 standard is responsible for the unique nature of NFTs minted on the Ethereum (ETH) blockchain. In this article, we will explain all you need to know about the ERC-721 token standard, its use cases, and much more.

ERC-721 Tokens Defined

ERC-721 stands for Ethereum Request to Comment 721. ERC-721 tokens are known as NFTs, and they represent unique digital or physical assets (phygital). 

This token standard makes it possible for users in the crypto space to have digital ownership of rare collectables which possess unique value. They each possess a one-of-a-kind value, making them NFTs. "Non-fungible" means they can't be traded one-for-one because they're all different.

How Does the ERC-721 Token Standard Work?

The ERC-721 token standard provides guidelines for creating unique digital assets on the Ethereum blockchain.  

• Each token created follows these rules, ensuring it's distinct.  

• Smart contracts manage ERC-721 tokens, defining how they are created, owned, and traded transparently on the blockchain.  

• Token ownership is recorded on the blockchain immutably.  

• ERC-721 tokens can be bought, sold, and traded just like any other asset, physical or digital.

They store metadata like the pet's breed, colour, or special traits, adding value and uniqueness. For example, in a game like "Digital Pets," each pet is represented by an ERC-721 token. Let's say you have a rare "Golden Dragon" pet with fiery wings and glowing scales.  

This pet token is unique – no one else has the same one. You can show off your Golden Dragon, trade it for another rare pet, or breed it with other pets to create new combinations. Everything is recorded on the blockchain, ensuring your ownership remains secure.

Why Is It Important?

Here's why the ERC 721 standard is important:

• Uniqueness

ERC-721 tokens make things special on Ethereum because each one is different. This uniqueness is essential for digital collectables, where each item has its value and characteristics. For example, in a game like CryptoKitties, each virtual cat is represented by an ERC-721 token with its unique traits, making them highly collectable.

• Ownership

ERC-721 tokens offer a secure method to confirm ownership of digital or real-world items. This is especially helpful for digital art or in-game objects, where users desire clear proof of ownership. With ERC-721 tokens, ownership details are stored on the blockchain, ensuring they cannot be altered and are easily verifiable.

• Interoperability  

ERC-721 tokens are crafted to seamlessly function across various applications and platforms on Ethereum. This means that NFTs can be utilised diversely and integrated into numerous applications. For instance, an NFT representing digital artwork can be effortlessly bought, sold, and showcased on different marketplaces and platforms.

• Expansion of the Digital Economy

ERC-721 tokens broaden the digital economy by establishing new markets for digital assets such as art, virtual land, and in-game items. These assets possess tangible value and can be traded like physical assets, generating fresh opportunities for commerce and investment within the digital sphere.

• Community Engagement  

ERC-721 tokens foster vibrant communities around digital collectables and games. Users can buy, sell, and interact with NFTs, building relationships and communities around shared interests. This engagement strengthens community ties and creates a sense of belonging among users.

• Democratisation of ownership

ERC-721 tokens enable more people to own valuable assets by fractionalising them into smaller shares. This allows individuals to invest in high-value assets like real estate or rare collectables without needing to buy the whole asset. By democratising ownership, ERC-721 tokens promote financial inclusion and broaden access to wealth-building opportunities.

Challenges of ERC-21

A product within the broader crypto economy, ERC-21 faces challenges common to the crypto ecosystem and those unique to it.

• Environmental Impact

Though Ethereum has transitioned from the proof-of-work (PoW) consensus mechanism to the proof-of-stake (PoS) mechanism, the environmental impact of the ERC-721 standard should be taken seriously.

• Uncertainty around Status

As is common to all crypto products, concerns such as intellectual property rights, taxation, and regulatory status plague ERC-721.

• Security 

ERC-721 token standard remains vulnerable to cyber-attacks, hacks and fraud. Hacks are common across NFT platforms and marketplaces. So, the security of an ERC-721 token is a cause for concern.

Use Cases Of ERC-721

The following are the use cases of ERC 721:

• Digital art

Artists can tokenise their artwork using ERC-721 tokens. Each token represents a unique piece of art, allowing artists to sell their work directly to collectors on blockchain-based platforms. For instance, platforms like SuperRare and Rarible enabled artists to mint their digital creations as ERC-721 tokens, providing proof of ownership and authenticity.

• Real estate

ERC-721 tokens can revolutionise the real estate market by digitising property ownership. Companies like RealT tokenise real estate properties into ERC-721 tokens, allowing investors to buy fractional ownership of properties on the blockchain. Each token represents a share of the property, providing transparency and liquidity in real estate investments.

• Collectables  

ERC-721 tokens serve as the backbone of digital collectables marketplaces. Platforms like NBA Top Shot and OpenSea enable users to buy, sell, and trade unique collectables such as sports highlights, trading cards, and virtual items. Each collectable is represented as an ERC-721 token, ensuring ownership and scarcity.

• Identification & Authentication  

For identity verification and authentication, ERC-721 tokens are employed. Projects like uPort issue decentralised digital identities using ERC-721 tokens. Each identity token represents a distinct digital identity, giving users control over their personal information on the blockchain.

• Gaming industry  

In the gaming industry, ERC-721 tokens are employed to depict in-game items and characters. Games such as Axie Infinity and CryptoKitties utilise these tokens, allowing players to possess, exchange, and breed exclusive digital assets. For instance, in CryptoKitties, every virtual cat is represented by an ERC-721 token, each possessing its distinctive traits and features.

How to Create An ERC-721 Token?

Here is a quick guide below on how to Create an ERC-721 token:

Understand ERC-721 tokens

ERC-721 tokens are unique digital assets, unlike regular tokens. Each ERC-721 token has its distinct features and properties.

Gather token details

Decide the name and appearance of your token. Determine any special features or attributes you want to include.

Store token information securely

Utilise IPFS, a decentralised storage system, to securely store token details.

Write code using Remix.IDE

Use Remix.IDE, a coding tool, to write the code for your ERC-721 token. Employ the OpenZeppelin ERC-721 template to simplify coding.

Compile code

Compile the code to ensure it functions correctly. Address any errors or issues identified during compilation.

Deploy token to Ethereum blockchain

Connect to the Ethereum network using MetaMask or other web3 wallets. Deploy your ERC-721 token to the blockchain for use.

By following these steps, you can create your own ERC-721 token and utilise it for various purposes, such as digital collectables, in-game assets, or tokenizing real-world assets.

Top ERC-721 Token-Based Projects

ERC-721 tokens are digital assets that show ownership on the Ethereum blockchain. Here are some of the top ones:

CryptoKitties  

A collection of virtual cats that can be bought, sold, and bred.

Decentraland

A virtual world where users can buy and own virtual land to build on.

Rarible  

An online marketplace where artists can sell digital art as NFTs (ERC-721 tokens).

Uniswap V3 Positions NFT-V1 (UNI-V3-POS)

Tokens representing ownership in Uniswap's liquidity pools.

Ethereum Name Service (ENS)

Allows users to own domain names ending in. eth on the Ethereum blockchain.

Note: Other popular ERC-721 tokens include BAYC, Crypto Punks, Pudgy Penguins, MAYC, Lil Pudgy, etc.

Difference Between ERC-721 Token & ERC 20 Token

Although both the ERC-20 and ERC-721 token standards are guidelines deployed by developers on the Ethereum blockchain, they are entirely different. ERC-20 allows creators and developers to create fungible tokens while the ERC-721 allows for non-fungible tokens. 

Where to Buy ERC-721 Tokens?

Buying ERC-721 tokens is easy in the crypto market. Today, there are over 200 ERC 721 tokens available to buy in the crypto market, but they can't be easily traded outside of their ecosystem since most are in-game purchases (Gamefi)

Valuable ERC 721 tokens like Crypto punks, Crypto kitties, and Decentraland can be purchased on any NFT marketplace like Open Sea, Rarible, etc. Note: At the moment, BitDelta does not offer NFT support. You cannot purchase NFTs on the BitDelta Exchange. 

However, you can purchase hundreds of various ERC 20 tokens being listed, from ETH to any other token of your choice. These tokens are paired with USDT for easy trading. For example, if you want to purchase (Polygon) MATIC, it is listed as MATIC/USDT for easy trading.  

You can kick-start your trading journey by signing up on BitDelta.

Frequently Asked Questions (FAQs)

1. What does ERC stand for?

ERC stands for Ethereum Request to Comment.

2. What is ERC-721?

ERC-721 is a token standard on the Ethereum blockchain that is used to mint NFTs.

3. What is the difference between ERC-20 and ERC-721?

The difference between ERC-20 and ERC-721 is that the former allows creators and developers to create fungible tokens while the latter allows them to create non-fungible tokens.

4. What are the features of an ERC-721 token?

The ERC-721 token standard makes it possible for users in the crypto space to have digital ownership of rare collectables which possess unique value. They each possess a one-of-a-kind value, making them NFTs. An ERC-721 token has the following features:

• Uniqueness

• Ownership

• Interoperability

• Community engagement

5. Is ERC-721 free?

Yes, ERC-721 is a free and open token standard on the Ethereum blockchain that developers can use to create NFTs.