ERC721 tokens are non-fungible Ethereum tokens that enable data tokenization. Like ERC20 tokens, every ERC721 token on the Ethereum blockchain is a contract interface containing a database ledger that records on-chain activity. However, they do so while drastically reducing storage space on the blockchain.
Thinking of the differences between currency denominations and collectibles is the easiest way to distinguish between the two types of Ethereum tokens. Just as a $10 physical bill is always equal to $10 and all $10 bills are the same to their holders, all ERC20 tokens are interchangeable. Each ERC20 token is identical to another and is divisible into smaller units. However, collectibles such as weapons in video games are unique, nondivisible, and cannot be replaced with other items of the same type. Therefore, ERC721 tokens are required to represent these on the blockchain. Here is what makes ERC721 coins different:
Unique Identifiers: Each ERC721 token has a unique identifier that is associated with a single owner. Therefore, each ERC721 smart contract holds a different token. On the other hand, numerous ERC20 tokens can be created from a single smart contract since they are fungible and have interchangeable ownership identifiers.
Flexible Contracts: ERC721 tokens do not place standardized requirements and limitations on token metadata for creating additional functions. Instead, they establish a basic interface for smart contracts to implement token ownership, management, etc.
More Applications: While the utility of ERC20 tokens is limited to primarily transactional functions, ERC721 tokens greatly expand the possibilities of what can be done with Ethereum smart contracts.
Like all standard Ethereum tokens, ERC721 tokens account for ownership, token creation, transactions, and coin burning functions on the blockchain network. However, ERC721 tokens can transcend these use cases while seamlessly integrating into the existing Ethereum blockchain ecosystem. These non-fungible tokens (NFTs) can have different characteristics, providing a myriad of possibilities in areas such as:
Gaming: Collectibles have commanded much of the attention as items used in video games tend to be standardized. A weapon used by Player A is the same as a weapon used by Player B in the same game. However, NFTs would enable items to be individualized as well. For example, a weapon used by a famous eSports player could be sold off and transferred to the winning bidder. The bidder could be certain that they were using their favorite player’s actual weapon. This is not hypothetical by any means.
For example, the PS4 game, Plague Hunters, will enable users to trade their weapons and items over the Ethereum network. Decentraland, a virtual reality-based game, offers the ability to purchase land (with each bit of land representing the token held). This land can then be modified and manipulated by users how they see fit.
Transportation is another industry where NFTs can be utilized, particularly in ticket issuance. NFTs would allow for an experience similar to how flight tickets work on iPhones and Androids. However, they would also provide consumers with tickets that could be used across different apps, viewed in crypto wallets, and transferred to other passengers. Additionally, they would be able to combine various forms of transportation. A token could contain the characteristics of a particular train, flight, and bus tickets all in one.
Increased interoperability of NFTs will serve as an accelerator for this. One of the benefits of a decentralized application such as CryptoKitties is that users don’t need to seek permission to develop additional games on top of it. This open source nature creates an exponential effect on what can be created by anyone, anywhere in the world.