Analysis of the three popular Ethereum standards: EIP-6969, ERC-721C and ERC-6551

In the past week, we have seen at least three Ethereum-related standards being intensively discussed from various channels. These standards are EIP-6969, ERC-721C, and ERC-6551, each with different purposes and potential impacts.

Each standard has the potential to form or change an industry, so its importance is self-evident. Knowing ahead of time can also help you discover current new trends and trends.

However, one characteristic of the crypto world is the scattered and sudden nature of information, coupled with limited resources, which may prevent you from delving deep into the technical features of each standard and their potential impacts. Therefore, Deep Tide aims to compile, interpret, and compare these standards, guiding you to a comprehensive understanding in a clear and understandable manner.

1.EIP6969: Will it benefit the smart contract creators and the L2 ecosystem?

EIP-6969 is a proposal that first emerged around May 8th. It introduces a universal protocol aimed at implementing Contract Shielded Revenue (CSR). This proposal can be seen as an improved version of the previous EIP-1559.

Put it in plain english, the protocol hopes to allow the creators of smart contracts to take a share of the gas fees generated by users using the contracts.

The co-author of the proposal, @owocki, also mentioned that he hopes to incentivize smart contract developers through this mechanism to promote the development of the Ethereum L2 ecosystem, while not implementing this proposal on Ethereum L1 to maintain L1’s neutrality.

From my interpretation, if this incentive mechanism is implemented on Ethereum L1, it is likely to attract both good and bad actors who want to manipulate transaction volume, resulting in congestion. Overall, the disadvantages outweigh the benefits. Therefore, implementing it on L2 may be a better choice.

However, to fully understand this EIP-6969 proposal, it is necessary to understand the current operation and composition of gas fees in Ethereum. This involves the previous EIP-1559.

EIP-1559 came into effect during the London hard fork of Ethereum in August 2021. It specifies different destinations for the transaction fees paid by users:

1. Burn: A portion of the transaction fees in each block is burned. This fee is permanently removed from the supply, reducing the total supply of Ethereum.
2. Base Fee: A portion of the transaction base fee paid by users is distributed to miners as block rewards. In EIP-1559, a portion of the base fee is used as a reward for miners to encourage them to continue participating in block creation and transaction processing.
3. Max Priority Fee: The maximum priority fee paid by the user is as part of the additional fee. This fee goes directly to miners as their transaction rewards. The maximum priority fee is actively set by the user and can be used to increase the processing priority of the transaction, thus attracting miners to process the transaction first.

It is obvious that EIP-1559 does not actually consider the interests of contract developers. In fact, as a public chain, you can think of the supply side of Ethereum as two parts:

Validators (original miners) + Contract developers. The former essentially provides a reliable ledger, while the latter offers a variety of applications. Therefore, it is theoretically reasonable to give the latter a share of the pie as well.

If EIP-6969 can be implemented in real time, the gas fee may be broken down into: Burn + base fee + priority fee + fee paid to contract developers.

In summary, there are connections and differences between EIP-6969 and EIP-1559. EIP-1559 is a protocol improvement proposal focusing on the transaction fee mechanism, aiming to provide more stable and predictable transaction fees, and manage network congestion. Similarly, while maintaining the advantages of EIP-1559, EIP-6969 further aligns the incentive mechanisms of contract creators and the network by introducing a contract creator revenue mechanism, promoting the participation and rewards of contract creators.

We can use the following table to clearly demonstrate the functions and impacts of EIP-6969, as well as its origins with EIP-1559:

Note that we believe that the main risk of this new protocol is that if developers of incentive contracts can receive gas fees, will it lead to the emergence of more junk contracts? Therefore, there are actually contract security risks and the risk of occupying public resources on the entire public chain.

2. ERC-721C: NFT Royalties On-chainization

ERC-721C was proposed by Limit Break as an improvement on the ERC-721 non-fungible token (NFT) standard on Ethereum. Its main goal is to give NFT creators more control and customization over their NFT collections and how royalties are handled.

Note：

Limit Break is a free game development studio that introduced the concept of Creator Tokens in January 2021. The ERC721-C standard version 1.1 was launched in May 2023, implementing many concepts of Creator Tokens. @huntersolaire_ also detailed the specifics of this standard in a tweet.

Limit Break’s official “Creator Token Transfer” repository shows that ERC721-C is currently compatible with Ethereum and Polygon. It is also supported by the Sepolia testnet for Ethereum and the Mumbai testnet for Polygon.

From the name “Creator Token,” it is evident that ERC721-C is more focused on creators, thus prioritizing the protection of royalties.

To put it in plain english, under the current ERC-721 standard, royalties are actually just a commercial agreement and are not enforceable on chain. ERC-721C was proposed to solve this problem and make royalties a smart contract rule enforceable on the blockchain.

With ERC721-C, some possible uses include:

1. Shared royalties: Instead of NFT creators receiving all NFT royalty benefits alone, they can be distributed among NFT creators and holders to reward early adopters.
2. Only the minter receives royalties: The minter of the NFT can be the sole recipient of royalties, rather than the creator himself.
3. Conditional royalty payments: Whether royalties are paid for certain NFT transactions can be determined based on different conditions. For example, an ERC-721C contract can be configured so that royalties are only paid when the secondary sale price is higher than the original minting price.
4. Transferable royalties: NFT creators can issue an independent NFT to the holder, granting the holder the right to royalties. For example, when one mints “NFT X”, an NFT named “NFT Y” is also issued, which is entitled to all royalties generated by “NFT X”.

The launch of ERC-721C will have an important impact on the NFT industry:

1. Provide greater control for creators: ERC-721C enhances creators’ control over their NFT designs and enables royalty payments to be enforced through on-chain contract rules, thereby granting creators greater autonomy and rights protection.
2. Promote fair royalty distribution: With the functionality of programmable royalties, creators can design different royalty distribution mechanisms, as mentioned above.
3. Reduce the influence of marketplace platforms: By embedding royalty logic into smart contracts, creators will be able to directly control royalty settings, reducing the control and intervention of marketplace platforms over royalties.

A table summarizing ERC-721C:

3.ERC-6551: When NFTs are also Accounts

ERC-6551 enhances the functionality and value of NFTs by empowering NFT smart contract wallets.

The protocol is co-authored by @BennyGiang, one of the founding members of Dapper Labs, whose team has contributed to ERC-721 token standard and early projects like CryptoKitties.

The problem with conventional ERC-721 NFTs is their limited scope. They can only be owned and transferred, and cannot possess other assets such as tokens or other NFTs. Additionally, they cannot interact with other smart contracts or evolve based on external factors or user input.

ERC-6551 addresses the limitations of conventional ERC-721 NFTs by introducing the concept of a smart contract wallet for NFTs. Through a combination of registries and proxy contracts, it allows NFTs themselves to hold other assets, interact with other smart contracts and accounts, and achieve greater functionality and interactivity.

Therefore, you can think of tokens (NFTs) following ERC-6551 as operating as smart contract wallets. This means that ERC-6551 can hold tokens and other NFTs just like regular smart contract wallets, and can transact with other smart contracts and accounts such as decentralized exchanges (DEXs), lending platforms, game environments, and more.

This way of operating NFTs as smart contract wallets forms what is known as “Token-Bound Accounts” (TBAs), which are created and managed through a permissionless registry that is compatible with existing ERC-721 NFTs.

To summarize briefly, ERC-6551 may bring both benefits and challenges:

EIP and ERC, Can You Tell The Difference?

As I write this, I still think of a common question: What is the difference between EIP and ERC?

EIP (Ethereum Improvement Proposal) and ERC (Ethereum Request for Comments) are both proposal standards related to Ethereum, but they are indeed different.

EIP is the Ethereum network’s improvement proposal standard, which is used to describe proposals for improvements and new features to the Ethereum protocol. Once the EIP is adopted and agreed upon, it will become part of the Ethereum protocol and be implemented on the Ethereum network. EIP describes changes at the protocol level, such as improving blockchain mechanisms, virtual machine rules, consensus algorithms, etc.

On the contrary, ERC is the token standard for Ethereum, used to describe the interface and functionality of token contracts. ERC defines the basic standards for token contracts to ensure interoperability of tokens on the Ethereum network. ERC is a specification for token contracts, describing functions such as token transfer, balance query, metadata, and more.

Therefore, although EIP and ERC are both standardization mechanisms in the Ethereum community, they focus on different areas. EIP focuses on protocol-level improvements, while ERC focuses on standardizing token contracts. As such, EIP does not directly become ERC, as they are independent concepts.

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