TL;DR
The newly launched option of granting NFTs their own ‘token bound accounts’ has the potential of moving NFTs from ‘overpriced jpegs’ to on-chain agents. When NFTs can own things and transact themselves, they’re freed from the shackles of being moved around as tokens. You can already deploy the token bound account for any NFT you own. The ecosystem is expected to evolve rapidly in the coming months.

The idea is simple. What if NFTs… had their own wallets? Enter: Token Bound Accounts. These are smart contract wallets tailor-made for NFTs. Meaning that NFTs can then own ETH or other ERC-20 tokens and NFTs. Wait, so if an NFT can own an NFT, which can own an NFT, which can… yes, we are reminded of the Russian dolls.

Ethereum standard ERC-6551, titled “Non-fungible Token Bound Accounts,” went live on Ethereum mainnet in early May 2023. It can give each NFT a smart contract account. 

Refresher: a smart contract account or smart account doesn’t require the storage of private keys. It doesn’t rely on the account holder to manually approve each transaction. Instead, the account can be customized and automated using code. That’s why smart accounts offer options such as automated regular payments, revenue sharing, and a host of other financial use cases that go beyond just sending a transaction. 

Unveiled Last March

Unveiled at ETH Denver only last March, token bound accounts are making waves. It already works with existing apps such as MetaMask.

Picture this (or should I say: jpeg this – sorry). You will be able to subscribe to a service and do regular payments on behalf of let’s say your Crypto Punk or Mfer! Your Bored Ape could own a Punk and post this as collateral on Blur to get out a loan!

This is all explained in detail by one of the creators Benny Giang in this talk. The maker was inspired by Soul Bound Tokens (SBTs) and the idea is the inverse. Instead of an NFT bounded to a wallet, these are wallets bounded to NFTs: Token Bound Accounts (TBAs). Each token bound account is owned by a single ERC-721 token (NFT). It allows the NFT to interact with the blockchain, record a transaction history, and own on-chain assets. 

The Problem With the Current State of NFTs

NFTs on Ethereum (ERC-721 tokens) have a limitation: they don’t have agency. They don’t own things, they have no transaction history. 

Now envision NFTs with tokenbound accounts. Let’s say an in-game character NFT accumulates assets and abilities over time. No longer a static jpeg!

Of course, the control of each token bound account is delegated to you, the owner of the ERC-721 token. You can initiate on-chain actions on behalf of your NFT. 

Why would you want such a thing? I already gave the example of gaming. But think for a second about profile pictures NFTs. For example @punk6529, the pseudonymous crypto analyst who expresses his views on the future of the metaverse. Would it not make much more sense if the owner of this Crypto Punk could also put ‘his money where his mouth is’? In other words, that the punk #6529 could express its beliefs by owning assets such as ETH and NFTs itself? After all, transacting is a form of expressing values.

Until now, NFTs were passive. In a sense, they were slaves that were passed around. With EIP 6551, they become owners. Of course, the NFTs are still passive in the sense that they don’t initiate transactions, their owners do. Still, every NFT now has a 4337 account (account abstraction). This leaves quite some elbow room to act independently in the way that arbitrage bots already perform a series of assignments. 

A Benefit: Intuitive Way to Organize Assets in ‘Folders’

Crypto wallets can become messy. Especially influential owners get airdropped tons of worthless NFTs in their wallet. Wouldn’t it be nice for them to organize a wallet in folders, including a trash folder? 

The ‘folder’ in this case would be a separate NFT to which they send all their trashy NFTs and worthless shitcoins. Similarly, they could send all their NFTs from the Bored Ape ecosystem to their primary Bored Ape. It’s all possible because NFTs now can contain other NFTs. (idea from Web3Academy).

A practical application of this is ticketing. An obvious use case for an NFT is to make a ticket for a sports match into an NFT. But an entire season pass can also be an NFT, containing the NFTs for the individual matches. Of course, bundling all these NFTs makes it much easier to sell tickets and season cards. 

To use a cliche: The possibilities are endless. Not just tickets, but any online item that fits within a certain hierarchy. That’s indeed almost anything: songs and music albums as NFTs, for example. And what about gaming characters? All the swords, skins, and helmets that your character (an NFT) owns, don’t have to end up in one big pile in your wallet, but are stored where they belong: with the character.

By the way, this will make it much easier to transfer assets and switch between platforms. You can tie together all your on-chain belongings (as long as they’re EVM-compatible) to one NFT and transfer that one in a single transaction.

Another Benefit: Messaging

Blockchain isn’t just about owning your money but also about owning your data. Your messages on messaging apps or social media apps deserve the safety and uncensorability of logging in with Ethereum. Ethermail is an example (they’re airdropping tokens now by the way). If NFTs can have an account, their holders can message/mail each other. So it suddenly becomes extremely low-threshold to contact the holder of a mfer NFT: you simply message the NFT itself!

What Do I Need to Do?

Token bound accounts are backward compatible with the ERC-721 (NFT) standard. With a permissionless registry, similar to ENS domains, every single NFT will automatically have a token bound address. This means your existing NFTs can implement ERC-6551 without undergoing any fundamental changes. Only the owner of an NFT will be able to use it when that wallet address is deployed. You can think of it kind of like a token-gated safe: the owner of the NFT will always own the wallet and all assets inside, and all execution permissions on the wallet.

If you own an NFT, here’s how you find out its wallet address:

1. Go to Tokenbound.org and connect your wallet.
2. Look up your NFT.
3. Click on the address that’s popping up.
4. Click Deploy Account.
5. When the deployment is complete, the notation will change to “Use Wallet” and you can operate your wallet (token bound account) from here. Well, soon. At the time of writing, the Ethereum mainnet only allows deployment. So, it’s not yet possible to move assets in and out of ERC-6551.

Let’s wait which steps are next in the coming weeks and months, as an application ecosystem will no doubt develop. Then, your NFT will be able to vote in DAO’s, message other NFTs, get its own ENS name, etcetera…

Conclusion

NFTs are moving from a jpeg in your MetaMask towards self-sovereign identities. They 

can own assets, perform on-chain actions, in other words, they create their own history. This takes NFTs beyond ‘buy sell trade’ dynamics. By giving them something to do, these NFTs can populate the metaverse, engage in trades. It has always been clear from the speculative frenzy around NFTs that people yearn for a way to express their online personality with an avatar. With token bound accounts, these NFTs suddenly become much more expressive.