ERC-721 protocol explained

Cryptocurrencies, such as Bitcoin and Ethereum, have revolutionized the way we think about money and online transactions. But behind every cryptocurrency is a protocol, a set of rules and standards that govern how the currency is created, transferred, and stored. One such protocol, ERC-721, revolutionized the crypto world in the previous year for its unique approach to tokenization.

This article will explain everything you need to know about crypto protocols, on the example of ERC-721. If you read to the end, you'll be able to handle this sophisticated crypto concept like a pro.

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What are crypto protocols?

Cryptocurrency protocols are the rules governing how transactions are conducted on a blockchain network. These protocols are designed to ensure that transactions are processed securely and efficiently and that all parties involved in a transaction can verify its validity. Essentially, crypto protocols are layers of code that determine how blockchain will function.

One of the most widely used protocols in the cryptocurrency space is the ERC-20 protocol. It defines a standard set of rules for all ERC-20 tokens, making it easier for developers to create new coins and for investors and users to understand how they work.

ERC-20 tokens are fungible, meaning that they can be exchanged for one another. And that's a significant point because, as you will see later, not all protocols "work" for fungible tokens.

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What is the ERC-721 protocol?

Before diving into ERC-721, let's first define what tokenization is. Tokenization is the process of taking an asset, such as a stock or a piece of property, and converting it into a digital token. This token can then be bought, sold, and traded on a blockchain. Tokenization allows for assets to be easily transferred and tracked, as well as opening up new investment opportunities.

ERC-721 is a relatively new protocol that builds on the existing ERC-20 standard. The protocol retains features of any other crypto standard and forms the "encoded foundation" for various tokens.

However, there's a difference between ERC-721 and other protocols. ERC-721 was specifically designed for use with non-fungible tokens (NFTs), unique digital assets that cannot be replaced or exchanged for an equal value.

The ERC-721 protocol allows for more advanced functionality, such as transferring ownership of an NFT, approving or rejecting transactions, and receiving royalties for using the NFT. This opens up a whole new world of tokenization possibilities, allowing for more traditional assets to be easily traded on a blockchain.

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Why is ERC-721 crucial for NFTs?

As mentioned, NFTs are unique digital assets that cannot be replaced or exchanged for an equivalent, such as artworks, virtual real estate, collectible cards, etc. ERC-721 is particularly useful for creating and managing NFTs on the Ethereum blockchain, and here's why.

Using the ERC-721 protocol, NFT creators can attach additional information to their tokens, such as the artwork's name, symbol, description, collectible, or virtual real estate.

ERC-721 allows for a more immersive and interactive experience for the users and makes it easier for buyers and sellers to identify and verify the authenticity of an NFT.

Another important aspect of ERC-721 is that it allows for tokens to have multiple owners. This is known as fractional ownership, meaning that one token can represent a fraction of an asset rather than the whole thing. This allows more people to invest in and own a piece of an asset, making it more accessible to a broader range of investors.

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Conclusion

Crypto protocols are crucial to the blockchain because they define how a particular coin will function. By allowing for the tokenization of physical assets and fractional ownership, ERC-721 has transformed our understanding of digital ownership and created new opportunities for inventors, artists, and entrepreneurs.

The ERC-721 protocol is a vital contribution to the Ethereum blockchain and the crypto ecosystem as a whole. It brings the concept of non-fungible tokens to life, laying the groundwork for the creation and sale of NFTs.

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