NFTs have gone mainstream in the last few years, with everything from digital art to collectibles and in-game items selling for millions of dollars. But the real magic behind NFTs is the technology that powers them: NFT token standards. In this post, we’ll break down what these standards are, why they’re important and how to choose the right one for your project or collection. Whether you’re new to crypto or already have some experience, this straightforward guide will help you understand NFT token standards without getting lost in technical details.
Introduction
The rise of NFTs has changed the way we think about digital assets. Once upon a time, we talked about cryptocurrencies like Bitcoin or Ethereum, mainly as ways to send money digitally. But then came NFTs—unique tokens that represent ownership of something specific, like a piece of art, a video clip or an item in a video game. Suddenly, digital items could be truly one of a kind.
To truly get a handle on NFTs, it’s important to understand the token standards that power them. A token standard is a kind of rulebook that tells the blockchain how a token should behave, including how it’s created and transferred and how it stores its unique data. Without consistent standards, you’d have a messy jumble of incompatible digital tokens. Thanks to these standardized rules, blockchains can handle NFTs smoothly, opening the doors for marketplaces, games, and collectibles galore.
Importance of Token Standards
Think of token standards as the foundation on which all NFT marketplaces, games, and apps are built. These standards ensure that NFTs work well across different platforms and wallets. They also help keep costs and errors in check because developers don’t need to reinvent the wheel every time they create a new token.
Most NFTs today live on the Ethereum blockchain, which introduced the concept of smart contracts—self-executing agreements that automatically handle token transfers and ownership. Smart contracts rely on well-defined token standards to make sure NFTs work as intended.
What Are NFT Token Standards?
A token standard is basically a set of instructions that define how a specific type of digital token behaves on a blockchain. Imagine if every new car brand used different parts that couldn’t fit on roads or interact with gas stations. That would be chaos, right? Similarly, blockchains need common sets of rules so tokens can be recognized, bought, sold, and transferred seamlessly.
The Role of Ethereum in NFTs
While there are multiple blockchains out there—such as Tezos, Flow, and others—Ethereum is the most popular for NFTs. Ethereum uses smart contracts (think: programmable digital agreements) that follow certain rules. These rules are spelled out in “ERC” proposals. “ERC” stands for Ethereum Request for Comments. Each ERC proposal creates a blueprint for how tokens should function, ensuring that different projects can talk to each other without confusion.
Overview of Popular NFT Token Standards
ERC-721
ERC-721 is the token standard that started the NFT craze. Before ERC-721, most tokens were “fungible,” meaning every token was identical to another (like how one dollar is the same as any other dollar). ERC-721 introduced non-fungible tokens, where each token has its own personality and data. This uniqueness allows NFTs to represent specific items such as:
Digital art and collectibles (e.g., CryptoKitties).
Rare in-game assets like a sword or magical item.
Limited-edition records or event tickets.
In simple terms, ERC-721 means each token is one-of-a-kind and can’t be swapped evenly for another token. Think of it like trading cards—trading a rare baseball card for a common one doesn’t make sense, because they have different values and attributes.
Key Features of ERC-721
Uniqueness: Every token is distinguishable from another.
Single Ownership: One token belongs to one address at a time.
Broad Adoption: Most early NFTs (like CryptoKitties) used ERC-721.
ERC-1155
ERC-1155 is sometimes called the “multi-token standard.” With ERC-721, you have to deploy a separate smart contract for every single token type (for example, each new art collection). This can become expensive and slow. ERC-1155 allows you to store both fungible and non-fungible tokens under one contract. That’s like having a single vending machine that can dispense both cans of soda (fungible) and collectible figurines (non-fungible).
So if you’re creating a video game with many weapons, potions, and rare items, you can handle all of them with one ERC-1155 contract. This also helps reduce gas fees (transaction costs on the blockchain) because you can batch transfer multiple tokens at once, instead of sending them one by one.
Key Features of ERC-1155
Efficiency: Manage multiple token types using one contract.
Cost Savings: Batch transactions lower transaction fees.
Flexibility: Support both fungible (identical) and non-fungible (unique) tokens.
ERC-998 (Composable NFTs)
ERC-998 introduces the concept of composable NFTs, which means an NFT can own other NFTs (and even some fungible tokens). Picture a digital character that has its own inventory of items—a sword (another NFT), a shield (yet another NFT), and maybe some in-game currency. Instead of storing those items separately, you can bundle them under the character. When you sell or transfer the character, all attached items go with it.
This idea can unlock complex structures. Imagine a piece of virtual real estate that includes a house, furniture, and a collection of artwork on the walls. With ERC-998, you could buy or sell that entire property (and all its furnishings) in a single transaction.
Key Features of ERC-998
Ownership Hierarchy: An NFT can hold other NFTs or tokens.
Simplified Transfers: Easily buy or sell bundled assets as a single package.
Greater Possibilities: Perfect for games, virtual worlds, and layered ownership.
Other Emerging Standards
While Ethereum dominates the conversation, other blockchains have their own versions of NFT standards. A few examples:
FA2 on Tezos: Allows for the creation of multiple assets (like ERC-1155) but on the Tezos blockchain.
EIP-2309: An Ethereum proposal for minting and transferring large batches of NFTs efficiently.
Flow FT/NFT Standards: Created by Dapper Labs (the team behind NBA Top Shot), Flow is optimized for high-volume NFT trading and user-friendly experiences.
Key Differences Among NFT Token Standards
ERC-721 vs. ERC-1155
Ownership Model:
ERC-721 focuses on one-of-a-kind items, each living in its own smart contract or collection contract.
ERC-1155 lets you handle multiple items in a single contract, whether they’re rare or common.
Gas Costs:
With ERC-721, you might have more transactions (and more fees) if you have a large number of items.
ERC-1155 reduces fees by batching transfers and minting multiple tokens together.
Ideal Use Cases:
ERC-721 is perfect for single, unique items, such as rare artworks.
ERC-1155 shines in gaming environments with many different types of items.
ERC-1155 vs. ERC-998
Asset Structure:
ERC-1155 primarily focuses on holding different assets in one smart contract.
ERC-998 focuses on the idea of NFTs owning other NFTs or tokens, creating a hierarchy.
Scalability and Interoperability:
ERC-1155 excels at issuing large volumes of both fungible and non-fungible tokens.
ERC-998 introduces composability, which opens the door for more complex ownership structures.
Niche Fits:
ERC-1155 is widely used in gaming (e.g., you have 100 swords and 50 potions in one contract).
ERC-998 is suited for layered assets (e.g., a character that owns multiple NFTs like a sword, shield, or pet).
Strategic Considerations
Picking the right standard often comes down to what you’re trying to achieve:
Simplicity: If you only need to launch a few unique items, ERC-721 might be enough.
Multiple Items: If your project involves large collections or different asset types (some fungible, some unique), ERC-1155 is a good fit.
Complex Ownership: If you want your NFTs to contain or own other assets, consider ERC-998.
Functions and Use Cases in Detail
Gaming and Metaverse Applications
Video games and virtual worlds (often called metaverses) benefit enormously from NFTs. In a game, you might have thousands of items—some common, others incredibly rare. Instead of each item needing its own contract (which can be tedious and expensive), you can bundle them using ERC-1155. For more complex games where characters and vehicles each own multiple accessories, ERC-998 can be a game-changer.
Example: In a futuristic racing game, you might have a digital car (an ERC-998 NFT). That car could include special wheels and an engine upgrade (both separate NFTs) and in-game currency tokens for fuel (fungible tokens). Selling the car transfers everything inside it to the new owner.
Art and Collectibles
Artists and collectors were among the first to embrace NFTs. ERC-721 is still the go-to choice for many art projects because each artwork is completely unique. However, artists who want to release a series of 1,000 prints might prefer ERC-1155 to mint them all efficiently and keep transaction costs lower.
Example: A photographer wants to sell 10 numbered copies of their latest masterpiece. Instead of launching 10 separate ERC-721 tokens, they can create a single ERC-1155 contract with 10 identical NFTs. This reduces complexity and fees.
Real-World Asset Tokenization
“Tokenization” means taking real-world items (like property, patents, or certificates) and representing them as digital tokens on a blockchain. This might sound futuristic, but it’s already happening. Imagine you own an apartment building. You could mint an ERC-998 NFT that represents the building, and within that NFT, you could bundle each apartment as separate ERC-721 tokens, or even fractional tokens representing shares in each apartment.
Why do this? Because it streamlines buying, selling, and managing partial ownership. In theory, you could click a few buttons and transfer ownership of an entire building, or just a slice of it. Real estate transactions that once took months could become much faster.
How to Choose the Right NFT Token Standard
Developer Perspective
Project Scope: How many tokens do you plan to create? Is it a small art collection or a large-scale game?
Smart Contract Complexity: Are you comfortable writing and auditing more advanced contracts like ERC-998, or would something simpler like ERC-721 be better?
Gas Costs and Efficiency: If you anticipate minting and transferring a lot of assets, ERC-1155 might save you money in the long run.
Ecosystem Support: Look for good documentation and community examples. ERC-721 and ERC-1155 have robust developer support, while ERC-998 is less common but steadily growing.
Investor and Collector Perspective
Scarcity and Liquidity: ERC-721 can offer more perceived rarity since each piece is truly unique.
Resale Value: The token standard might influence how easily you can trade items on different NFT marketplaces.
Interoperability: ERC-1155 can work nicely on certain platforms that handle batch trades. ERC-998 might be more niche but offers innovative use cases.
Best Practices
Start Simple: If you’re new, consider using established standards like ERC-721 or ERC-1155 with well-documented examples.
Plan for Growth: Even if you start simple, think about whether you’ll want advanced features later.
Test Before You Launch: Use test networks (like Ethereum’s Goerli testnet) to confirm your contracts work as intended.
Future of NFT Token Standards
Emerging Trends
NFT technology is evolving faster than ever. Developers are exploring “dynamic NFTs” that can change based on external conditions (for example, weather data or sports results) and “cross-chain NFTs” that can hop between different blockchains. New token standards that allow for more composability, interoperability, and advanced features are likely on the horizon.
Potential Challenges
Regulation: As NFTs continue to gain mainstream attention, governments and regulatory bodies are taking a closer look. This could affect how NFTs are traded, taxed, or licensed.
Technical Complexity: While standards simplify things, bridging multiple blockchains isn’t always smooth. Developers will need to work on solutions that unify different networks without creating chaos.
Sustainability: Blockchains can consume a lot of energy. Many are moving toward more eco-friendly systems, but it remains a concern for the future of NFTs and cryptocurrencies.
Conclusion and Summary
Recap of Key Points
NFT token standards like ERC-721, ERC-1155, and ERC-998 define how NFTs work under the hood.
ERC-721 introduced the idea of unique, non-fungible tokens, making it ideal for one-of-a-kind art and collectibles.
ERC-1155 allows you to manage both fungible (identical) and non-fungible (unique) tokens in the same smart contract, perfect for gaming and batch minting.
ERC-998 makes it possible for NFTs to own other NFTs, opening up complex ownership and layered assets.
Final Takeaways
Choosing the right NFT token standard depends on your goals. If you want to create a single precious artwork, start with ERC-721. If you need to handle large collections or gaming items, ERC-1155 saves time and money. If your project involves entire ecosystems of assets nested within one another, ERC-998 might be your best friend. Each standard has its own benefits and understanding them is key to getting the most out of the NFT space.
Next Steps
If you’re a developer, head to the Ethereum docs or check out open-source repos on GitHub. If you’re an investor or collector, check out projects using different standards and see which ones you like. Keep an eye on emerging standards on Tezos and Flow as the NFT world moves fast.
No matter where your NFT journey takes you, remember that token standards aren’t just technical stuff. They’re the foundation of the whole digital collectibles, virtual real estate, etc. universe.
Editor’s note: This article was written with the assistance of AI. Edited and fact-checked by Owen Skelton.
