ERC-998 is widely called Composable Non-Fungible Tokens. This ERC-998 token is an extension of the ERC-721 standard’s functionalities. This standard is widely used in creating non-fungible tokens.
The NFTs that are created based on ERC-998 have the ability to own other NFTs of the ERC-20 token standards. A single ERC-998 token can be used to represent a set of similar assets of ERC-20 tokens or ERC-721 tokens and it can be transferred in a single transaction.
For example, in a CryptoKitties, using ERC-721 you would be able to create a unique virtual cat. To your virtual cat, you can add accessories like dresses, hats or glasses, etc using ERC-998, thus leading to an entirely new virtual cat.
This ERC-998 standard involves two types of composable tokens namely,
Both of these composables implements the ERC-721 token standard and extend their functionalities to allow them to own or to be owned by other tokens based on the same standard as well as the tokens of ERC-20 standards.
Top-down composables are mainly used to store information about its child tokens. The way this top-down composable works is just like filling a container with a collection of unique items and then handing over the container to someone. In these top-down composables, you would be able to transfer ERC-721 tokens in them or out of them just like you do with the regular ERC-721 tokens.
Unlike Top-down composables, Bottom-up composables do not store information about the child tokens, instead it stores information about the parent tokens. These bottom-up composables serve as child tokens and attach themselves to the other ERC-721 tokens. In this case, the ERC-721 tokens act like the containers and a bunch of bottom-up composables can be transferred to a regular ERC-721 token. Later it can be given to someone else.
If you are planning to transfer a bunch of ERC-721 tokens into non-fungible tokens, the top-down composables is the right choice for you. Instead if your goal is to transfer non-fungible tokens into ERC-721 then you must choose bottom-up composables.
As mentioned above, you can create a virtual character and own several accessories as virtual assets using ERC-998. Another lively example for its use case could be CryptoRome, the first game to release ERC-998 assets to its players. Using this token, the player can acquire several lands and thus by owning several underlying assets connected to that land. Due to ERC-998, the player can sell an entire city structure that includes several lands and its dependent assets with just one blockchain transaction.
This ERC-998 has the possibility to compose a land into an existing or a new ERC-721 token. In the future, this use case can be extended and create a higher-level ERC-721 token in order to hold a group of lands. To think of a more hypothetical use case, a spacecraft can be owned by ERC-721 token and the fuel required to reach the destination can be owned by a different token and both these token assets can be represented in a single ERC-998 token. And such tokens can be auctioned to companies based on space travel.
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