NFTs: the basics
An NFT, or non-fungible token, is a unique digital asset on the blockchain. It has unique metadata and can't be copied or substituted. Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, NFTs are not like-to-like with one another (fungible).
Some use cases for NFTs include digital art and digital collectibles, game items and blockchain games, tickets to events, as well as long term uses in the metaverse and in the real world.
The ecosystem is growing fast and NFTs, at first popular on the Ethereum blockchain, have spread to other blockchains including Solana, Tezos and Stacks, a blockchain layer which enables smart contract functionality for Bitcoin.
In this article, we will look into token standards and how they work.
What is a non-fungible token standard?
NFT standards (or token standards) describe how to build NFTs on a particular blockchain protocol. There are many different standards on different blockchains.
Stacks blockchain standards
Stacks is a blockchain technology that is anchored to the Bitcoin blockchain. It enables the use and creation of smart contracts through the Clarity programming language, essentially making the Stacks blockchain a 'GitHub for smart contracts', and making NFTs, NFT marketplaces, and DeFi applications built on Bitcoin possible.
Gamma.io, the leading NFT marketplace on Stacks, allows users to buy, sell and mint incredible NFTs secured by Bitcoin.
The standard used by the Stacks blockchain to create NFTs is SIP-009. It outlines standard features that NFTs must have to be compatible with Stacks wallets. SIP stands for Stacks Improvement Proposal.
The SIP-010 standard is an interface definition that allows Stacks applications and wallets to interact with fungible tokens in a standard way.
On the Ethereum network, token standards start with the abbreviation 'ERC' (Ethereum Request for Comments). The "ERC" abbreviation denotes a set of rules that help developers improve the process of creating a standard ETH-based token, and the number that follows is the unique identification number for the proposal. ERCs are essentially EIPs (Ethereum Internal Proposals) mainly dedicated to dApps (decentralized applications).
The ERC-721 token standard was the first NFT standard, and started it all. It is the most popular and widely used NFT standard. It describes how to build NFTs on Ethereum. 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. ERC-721 tokens cannot be destroyed or duplicated, and are unique because the token ID (identifier) and the contract address pair must be unique. ERC-721 was first used in the CryptoKitties game and is the most popular token standard on OpenSea, the leading NFT marketplace on ETH.
Due to its popularity, ERC-721 equivalents were written on other chains. As an example you'll find BEP-721 on BSC (Binance Smart Chain) and standards similar to ERC-721 on the Flow blockchain, with the advantage of a lower gas fee (transaction fees). Since Flow powers NFT marketplaces like NBA Top Shot, it is gradually gaining popularity in the NFT space. TRC-721 is the equivalent of ERC-721 on the Tron blockchain.
ERC-20 tokens are Ethereum smart contracts that provide great flexibility and functionality. They can act as certificates, financial assets, utility assets, cryptocurrencies or stocks. The main difference between ERC-20 and other crypto standards is that it is tied to ETH and can only be used within this network, therefore, commissions are written off during transactions and gas fees directly depend on the network's load.
Just like ERC-721 standard, ERC-998 tokens are non-fungible, but they are also composable. Think of it as a portfolio of digital assets: they can be organized into complex digital assets and hold various NFTs (like the ERC-721) as well as fungible tokens (like the ERC-20).
With the ERC-1155, users can register NFTs and FTs (fungible tokens) in the same smart contract. Fungible tokens, such as in-game currency, are often used to purchase NFTs, such as in-game items and other digital collectibles. This standard was created by blockchain gaming developers Enjin, Horizon Games and The Sandbox in 2017, and is essentially a combination of the ERC-20 (fungible token) and ERC-721 (non-fungible token) standards. Semi-fungible tokens emerged from Ethereum's ERC-1155 standard and are mainly used in the gaming industry.
Other Ethereum standards include ERC-827, which allows the approval of fungible token transfers so the tokens can be spent by an on-chain third party; ERC-777, an improvement on ERC-20 allowing users to send tokens on behalf of different addresses; ERC-1137, designed for recurring payments, and more.
Tezos blockchain standard
Tezos, a decentralized blockchain, has its own native cryptocurrency called Tez and a single NFT standard called FA2, that can support a variety of token types (including fungible tokens, NFTs and other interactive, transmutable gaming items). FA2 also supports a standard API for external wallets, games, and apps.