Understanding ERC-7401 in One Article: A New Chapter in Nested NFT Standards

Author: NFTScan

In today's rapidly evolving landscape of digital assets and blockchain technology, non-fungible tokens (NFTs) have become an important form of asset, widely used in various fields such as art, gaming, and collectibles. As market demands diversify, traditional NFT standards like ERC-721 and ERC-1155 can no longer fully meet user needs, especially in terms of flexibility and interactivity. To address these challenges, various innovative protocol standards have emerged in the market. This article mainly explores ERC-7401, which introduces the concept of nested NFTs, opening up new possibilities for the functionality and flexibility of NFTs.

What is ERC-7401?

ERC-7401, or parent-managed nested non-fungible tokens, was initially named ERC-6059 but was revised and renumbered after extensive community feedback. This standard was proposed in 2022 and finalized in September 2023, with its future applications yet to be observed, but it promises improved functionality. Its core innovation lies in allowing one NFT (parent NFT) to contain one or more other NFTs (child NFTs), thereby opening the door to managing and interacting with multi-layered assets.

This standard extends the basic NFT standard to allow for nesting and parent-child relationships between NFTs. In simpler terms, NFTs can own and manage other NFTs, creating a hierarchy of tokens. This structure enables users to manage and trade their digital assets more flexibly, while also providing more possibilities for the creation and use of NFTs. Compared to other standards, ERC-7401 is designed with a greater emphasis on scalability and interactivity, aiming to meet more complex application needs.

Concepts and Innovations of ERC-7401

We have become accustomed to the fact that only user wallets or smart contracts can own NFTs, but it is also possible to "nest" non-fungible items within each other. The technical implementation of the ERC-7401 standard is based on several core points:

• Multi-level nesting: Supports unlimited levels of NFT nesting, where each parent NFT can contain multiple child NFTs, and these child NFTs can themselves become parent NFTs of other NFTs. This multi-layered structure not only provides great flexibility for asset combination and splitting but also allows for the realization of more complex asset relationships and management strategies.
• Asset management flexibility: Users who own parent NFTs can freely manage their internal child NFTs, including but not limited to adding, removing, or replacing them. This is particularly important when managing complex asset collections, such as art series or multiple in-game equipment.
• Cross-collection interoperability: Parent NFTs and child NFTs can belong to different NFT collections, providing great flexibility for cross-brand or cross-platform collaborations. For example, an NFT from a movie series can include limited edition artworks from multiple different artists.

Diversified Application Scenarios

The practical application scenarios of ERC-7401 are wide-ranging and diverse, including but not limited to the following aspects:

• Gaming industry: Game developers can utilize ERC-7401 to design more complex in-game economic systems. For instance, a character NFT (parent NFT) can contain multiple equipment NFTs (child NFTs), which can be updated or traded individually, thereby increasing the strategic depth of the game and enhancing player engagement. This not only centralizes asset management but also allows for adjustments to a character's abilities and appearance through trading child NFTs.
• Art and collectibles: Artists can create collection NFTs (parent NFTs) that include multiple works, offering a holistic or decentralized collection method. This not only facilitates artists in managing and selling their works but also provides collectors with more choices and flexibility.
• Community management: The ERC-7401 standard also has significant applications in community management. Through ERC-7401, communities can create parent community NFTs that include multiple sub-communities or events. For example, a large community can serve as a parent NFT, while different activities, meetings, and sub-communities act as child NFTs. This way, community managers can more easily manage and organize community activities, enhancing participation and cohesion.
• Identity and certification: In the realm of digital identity verification, individuals or institutions can issue a parent NFT that contains multiple certifications or qualifications. Each certificate is stored as a child NFT, facilitating the management and verification of an individual's multiple identities or qualifications.

Impact of ERC-7401 on the NFT Ecosystem

1. Enhancing the Value and Liquidity of NFTs

By introducing a nested structure, the ERC-7401 standard can enhance the overall value and liquidity of NFTs. A parent NFT containing multiple child NFTs often has a value greater than the sum of individual NFTs. Furthermore, the unified management and trading of nested NFTs can significantly improve the liquidity of NFTs, promoting market activity.

2. Stimulating Innovation

The ERC-7401 standard provides developers and creators with more space for innovation. Through the nested structure, developers can design more complex and rich digital assets, sparking more creativity and applications. For example, in gaming, developers can create game assets that include multiple levels and complex relationships, thereby enhancing the depth and enjoyment of the game.

3. Optimizing User Experience

The introduction of the ERC-7401 standard can greatly optimize the user experience. By unifying the management and trading of nested NFTs, users can more conveniently manage and trade their digital assets. Additionally, the nested structure can more intuitively display the hierarchy and relationships of digital assets, improving user understanding and operational experience.

4. Promoting the Standardization Process

The launch of ERC-7401 marks a further advancement in the standardization process of NFTs. By introducing a nested structure, ERC-7401 provides new directions and ideas for the standardization of NFTs, promoting the normalization and standardization of NFT technology and applications. This not only helps improve the technical level of NFTs but also enhances market trust and recognition.

Technical Implementation and Challenges

The technical challenges of implementing the ERC-7401 standard mainly lie in how to efficiently handle and store a large amount of nested information. Additionally, the security of smart contracts is also an important consideration, as complex interactions and nesting may increase the risk of smart contracts being attacked. Developers need to optimize the performance and cost of contracts while ensuring their security and functionality.

Prospects and Outlook

With the continuous development of the NFT market, the introduction of the ERC-7401 standard undoubtedly brings new vitality and possibilities to the market. It not only provides users with more flexibility and choices but also opens the door for developers to innovate applications. In the future, we can foresee ERC-7401 exerting its unique influence in more fields, promoting further integration and innovation of digital assets and blockchain technology. As this standard is promoted and applied, the future NFT market will become more diversified and dynamic, providing users and developers with a richer and deeper digital asset experience.