NFT 2.0, the so-called next evolution of NFTs, covers a multitude of future applications from security to composability. This article will discuss topics pertaining to the future of non-fungible tokens within the crypto space.

Like any rational human being, I spent my night researching non-fungible tokens and the future of crypto.

So, what is NFT 2.0?

NFT 2.0 is a term used to describe the next generation of non-fungible tokens (NFTs)… It includes:

  • Interoperability
  • Programmability
  • Composability
  • Privacy and security

Let’s discuss them one by one:

Interoperability

As we all know, Web3 is made up of many different tokens, often belonging to different blockchains, or being blockchain tokens themselves. A token created on one blockchain cannot be innately accessed on another blockchain - it must be ported onto the new chain.

For example, take a Bored Ape Yacht Club NFT, which exists natively on the Ethereum network. In order to access this same NFT on Polygon, one would need to “bridge” the Bored Ape first. This requires a combination of a ‘lockup’ on Ethereum (placing the Bored Ape into a contract and freezing access), some sort of off-chain confirmation of the Bored Ape’s ‘lockup’, and finally the creation of a new token on Polygon, which might borrow the original Bored Ape’s metadata or other features.

Interoperability is invaluable for user experience and mass adoption; without the ability to properly port from one chain to another, one metaverse to another, or even one game to another, development within Web3 will isolate and eventually stagnate.

An immediate project that comes to mind is Gh0stly Gh0sts, named the first Omnichain NFT collection powered by Layer Zero tech.

Programmability

Digital assets are as powerful as their utility. If a token has utility value within an ecosystem, figuratively speaking, it has ‘double’ speculative power (price someone is willing to pay for it, price of its utility within an ecosystem). If the asset’s utility cost is greater than its speculative cost, the price rises to match said cost. In essence, utility breeds value.

Programmability within NFTs brings forth new levels of utility (and thus speculative value) - I could list examples endlessly. A ‘coupon’ asset that gives discounts on real goods depending on the weather outside. An ‘item’ NFT that changes its usage and form depending on the progress within a game. A ‘highlight reel’ asset which presents differently depending on fantasy performance.

The issue with programmability lies within the proper decentralization of its inputs and outputs: while true utility may require some semblance of centralization (interacting with real-brand goods), value can be properly secured through decentralized oracle systems like Chainlink.

A project that comes to mind with respect to programmability is Doodles 2, which will come out on Flow Blockchain. The concept allows for users to re-create their Doodles, and interact with their beloved NFTs in a new way.

Composability

This one I can handle. Wikipedia defines composability to be: “a system design principle that deals with the inter-relationships of components”. Within Web3, we refer to ‘composable NFTs’ as tokens that can hold different assets inside of them - coming from EIP-998.

Personally (and no, I’m not biased), composable assets have the ability to become the most valuable and utilized within all of Web3, simply because of their flexibility.

Composable NFTs may become legal frameworks, validated by an amount of held governance tokens. They can become characters within video games, as NFT ‘swords’ become held items for users. They will represent Loot Boxes, as gaming companies become increasingly integrated with blockchain technology.

And of course, composable NFTs exemplify packaging within Web3, and create an extra layer between a user’s interaction and utilization. If you’re interested in that thought, I recommend you check out my article about packaging within Web3.

Without a doubt, the company pioneering innovation within the composability space would be Capsule. Capsule features a completely open API abstractable by any developer, and allows for anyone to create customized, potentially token-storing NFTs, in one transaction.

But, I wouldn’t know anything about them. So don’t ask me. Check their website for more info.

The definitive project which defines itself by composability would be Dollar Store Kids, the first dollar-backed NFT collection in the history of crypto. The Dollar Store Kids collection has been completely open-sourced and audited by Quantstamp to inspire composable NFT collection creation. Dollar Store Kids resides on the Ethereum blockchain.

Consider a bank note: an item that can be redeemed at any time for any value, regardless of speculative price. That’s Dollar Store Kids. If you’re interested in reading more about Dollar Store Kids, check out my article here.

Note: This article was released in January 2023, and an interesting standard called ERC-6551 has spawned since then. A great example of composability!

Privacy and Security

NFTs are quite simply pointers. Each NFT within a collection has a unique ID (a numeric identifier) which distinguishes its utility, ownership, and value from other tokens. Holding an NFT of ID #56 may have more value than holding an NFT of #57. This, we knew.

Now, let’s imagine we gave a specific NFT with ID #2 to our friend, Bob. We want to create a contract that ONLY Bob can use. Let’s discuss two different options:

We can hard-code his address within the contract. While this works, it isn’t a catch-all. What if Bob wants to access the contract from a different address? What if Bob wanted to pass usage of the contract to another, different user? This solution isn’t great.

We give Bob an NFT at a certain ID and require ID ownership to use the contract. This solution fixes both of the above issues: If Bob wants to access the contract from a different address, he can simply transfer his NFT to the separate address. If Bob wants to relinquish contract usage, he can simply trade away or sell the NFT.

Our NFT issuance solution offers ‘security clearance’ for anyone with ownership over a certain NFT ID. By combining this solution with many other ‘clearances’, we can programmatically (see, programmability is important) set security for contract interaction. Once a ‘clearance’ NFT has past validity (time runs out, or an employee loses clearance), the contract may revoke ID access.

Now, imagine tracking security clearance on a larger scale. Since each NFT can be tracked by its ID on the blockchain, we can easily figure out exactly who had clearance at what time. We now have a transparent, programmably fair system to determine access. This also prevents counterfeit items and badges from giving improper access!

The closest project that comes to mind for ‘security access’ would be Moonbirds, an NFT collection shrouded in secrecy, to which only holders are able to join and discuss secret Moonbird related topics. Moonbirds exists on the Ethereum blockchain.

Conclusion

As such, we conclude our conversation on NFT 2.0, and the future of NFTs within Web3. What types of collections will we find in the future? How will we build them? What is a 2.0 NFT?

No one knows. Well, I know one part of it. If you want to create composable collections, or interact with some of the brightest minds tackling composability within Web3, you’ll want to join the Capsule Discord. It’s right here.

Want to build something related to the topics above? Reach out to me on Twitter.

We’re going to continue to innovate within the space.

Come take a look.

–

You can always find me on Twitter/X or in the Capsule Discord.

Or, read more about Dollar Store Kids on my page here.

…Or, read more about Capsule on my page here.