Back to Blog
September 15, 2025
9 min read

Understanding NFTs: The ERC-721 Standard and Digital Ownership

A technical deep dive into Non-Fungible Tokens, the ERC-721 standard, and how NFTs enable verifiable digital ownership. Learn the implementation details, metadata standards, and architectural patterns behind the NFT ecosystem.

NFTERC-721EthereumWeb3

Understanding NFTs: The ERC-721 Standard and Digital Ownership

While ERC-20 revolutionized fungible tokens on Ethereum, NFTs (Non-Fungible Tokens) solved an entirely different problem: how to represent unique, one-of-a-kind digital assets on a blockchain.

In this article, I'll break down the technical architecture behind NFTs, explain the ERC-721 standard, and explore the engineering challenges of building NFT systems at scale.

The Uniqueness Problem

Traditional ERC-20 tokens are fungible — every token is identical and interchangeable. This works perfectly for currencies, but fails for assets that need unique properties:

  • Digital art with provable scarcity
  • Game items with different attributes
  • Event tickets with specific seat assignments
  • Domain names
  • Real estate deeds
  • Identity credentials

We needed a standard that could represent uniqueness while maintaining the composability that made ERC-20 successful. Enter ERC-721.

The ERC-721 Standard

ERC-721 introduces the concept of a tokenId — a unique identifier within a contract. While ERC-20 tracks balances, ERC-721 tracks ownership of individual tokens.

Core Interface

interface IERC721 {
    // Returns the owner of a specific token
    function ownerOf(uint256 tokenId) external view returns (address);

    // Returns the number of tokens owned by an address
    function balanceOf(address owner) external view returns (uint256);

    // Transfers ownership of a token
    function transferFrom(address from, address to, uint256 tokenId) external;

    // Safe transfer with data callback
    function safeTransferFrom(address from, address to, uint256 tokenId, bytes calldata data) external;

    // Approve another address to transfer a specific token
    function approve(address to, uint256 tokenId) external;

    // Approve an operator for all tokens
    function setApprovalForAll(address operator, bool approved) external;

    // Get the approved address for a token
    function getApproved(uint256 tokenId) external view returns (address);

    // Check if an operator is approved for all tokens
    function isApprovedForAll(address owner, address operator) external view returns (bool);

    // Events
    event Transfer(address indexed from, address indexed to, uint256 indexed tokenId);
    event Approval(address indexed owner, address indexed approved, uint256 indexed tokenId);
    event ApprovalForAll(address indexed owner, address indexed operator, bool approved);
}

Key Differences from ERC-20

Token Identity: Each NFT has a unique tokenId — no two tokens in the same contract can share an ID.

Safe Transfers: The safeTransferFrom function prevents tokens from being permanently lost by checking if the recipient can handle NFTs.

Operator Approval: Unlike ERC-20's per-token approval, ERC-721 allows approving an operator for ALL your NFTs at once — crucial for marketplaces.

Metadata: Connecting On-Chain to Off-Chain

The tokenURI function is where NFTs get interesting. It returns a URL pointing to off-chain metadata (usually JSON) describing the token:

function tokenURI(uint256 tokenId) external view returns (string memory);

A typical metadata JSON looks like:

{
  "name": "Cool NFT #123",
  "description": "A unique digital collectible",
  "image": "ipfs://QmXx.../image.png",
  "attributes": [
    {
      "trait_type": "Background",
      "value": "Blue"
    },
    {
      "trait_type": "Rarity",
      "value": "Legendary"
    }
  ]
}

Storage Considerations

Where you store this data matters:

IPFS: Decentralized, content-addressed storage. Immutable but requires pinning services. Arweave: Permanent storage with one-time payment. Good for long-term preservation. Centralized servers: Cheapest but mutable — the owner could change the metadata or image.

Many projects use a hybrid: store the image on IPFS/Arweave and reference it in on-chain or IPFS-hosted metadata.

Implementation: Building an NFT Collection

Here's a production-ready NFT contract with common features:

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;

import "@openzeppelin/contracts/token/ERC721/extensions/ERC721URIStorage.sol";
import "@openzeppelin/contracts/access/Ownable.sol";
import "@openzeppelin/contracts/utils/Counters.sol";

contract MyNFTCollection is ERC721URIStorage, Ownable {
    using Counters for Counters.Counter;
    Counters.Counter private _tokenIds;

    uint256 public constant MAX_SUPPLY = 10000;
    uint256 public constant MINT_PRICE = 0.05 ether;
    string private _baseTokenURI;

    constructor(string memory baseURI) ERC721("My NFT Collection", "MNFT") Ownable(msg.sender) {
        _baseTokenURI = baseURI;
    }

    function mint() external payable returns (uint256) {
        require(_tokenIds.current() < MAX_SUPPLY, "Max supply reached");
        require(msg.value >= MINT_PRICE, "Insufficient payment");

        _tokenIds.increment();
        uint256 newTokenId = _tokenIds.current();

        _safeMint(msg.sender, newTokenId);

        return newTokenId;
    }

    function _baseURI() internal view override returns (string memory) {
        return _baseTokenURI;
    }

    function withdraw() external onlyOwner {
        payable(owner()).transfer(address(this).balance);
    }

    function totalSupply() external view returns (uint256) {
        return _tokenIds.current();
    }
}

Advanced Patterns

Enumeration: ERC721Enumerable adds functions to iterate over tokens — useful but gas-expensive.

Royalties: EIP-2981 standardizes royalty payments to creators on secondary sales.

Soul-Bound Tokens: Non-transferable NFTs for credentials and achievements.

Dynamic NFTs: Metadata that changes based on on-chain or off-chain events.

ERC-1155: The Multi-Token Standard

For games and applications needing both fungible and non-fungible tokens, ERC-1155 provides a unified interface:

interface IERC1155 {
    function balanceOf(address account, uint256 id) external view returns (uint256);
    function balanceOfBatch(address[] calldata accounts, uint256[] calldata ids) external view returns (uint256[] memory);
    function safeTransferFrom(address from, address to, uint256 id, uint256 amount, bytes calldata data) external;
    function safeBatchTransferFrom(address from, address to, uint256[] calldata ids, uint256[] calldata amounts, bytes calldata data) external;
}

Key advantages:

  • Gas efficiency: Batch operations save gas
  • Flexibility: Mix fungible and non-fungible in one contract
  • Gaming: Perfect for items with multiple copies (potions) and uniques (legendary weapons)

Engineering Challenges

Gas Optimization

Minting is expensive. Strategies to reduce costs:

  • Use _mint instead of _safeMint when the recipient is known to be an EOA
  • Batch minting for multiple tokens
  • Optimize metadata storage (on-chain vs. off-chain trade-offs)
  • Consider lazy minting (mint on first transfer, not on creation)

Marketplace Integration

NFT marketplaces need approval to transfer tokens on your behalf. This introduces complexity:

// User approves marketplace
nftContract.setApprovalForAll(marketplaceAddress, true);

// Marketplace can now transfer any of user's NFTs
nftContract.safeTransferFrom(user, buyer, tokenId);

Security consideration: Malicious marketplaces could steal all approved NFTs. Always verify contracts before approval.

Metadata Mutability

Should metadata be immutable? Trade-offs:

Immutable (IPFS/Arweave):

  • Pros: True ownership, verifiable scarcity
  • Cons: Can't fix mistakes, no dynamic features

Mutable (centralized or updateable):

  • Pros: Fix errors, add dynamic traits
  • Cons: Trust issues, rug pull risk

Many projects use a hybrid: immutable images but updateable attributes.

Real-World Applications

PFP Projects: CryptoPunks, Bored Apes use ERC-721 for 10k collections Gaming: Axie Infinity, Gods Unchained use NFTs for in-game assets DeFi: Uniswap V3 positions are NFTs, each representing unique liquidity ranges Identity: ENS domains are ERC-721 tokens Ticketing: Event tickets with verifiable authenticity and anti-scalping mechanisms

Best Practices

  1. Use OpenZeppelin: Battle-tested, audited implementations
  2. Implement EIP-2981: Standard royalty support for marketplaces
  3. Consider metadata storage carefully: IPFS for decentralization, Arweave for permanence
  4. Add reveal mechanisms: Hide metadata until minting completes (prevents sniping rare traits)
  5. Test extensively: NFT bugs can result in lost or locked assets
  6. Plan for upgradeability: Use proxies if you need to fix bugs post-deployment

Conclusion

NFTs aren't just about digital art — they're a fundamental primitive for representing unique assets on blockchains. The ERC-721 standard provided the foundation, but the ecosystem continues to evolve with standards like ERC-1155, EIP-2981, and soul-bound tokens.

Understanding NFTs at a technical level unlocks the ability to build everything from collectible projects to complex gaming economies to decentralized identity systems.

Resources

The next time someone dismisses NFTs as "just JPEGs," you can explain how they represent a new paradigm for digital ownership — with verifiable scarcity, composability, and programmable properties that were impossible before blockchain technology.

Back to all articles