Whether you are a crypto native or a newbie, you have probably encountered different types of tokens, such as ERC-20 and ERC-721. But what exactly do these terms mean, and how do they differ? In today’s article, we will delve into token standards and compare some of the most common tokens on the Ethereum blockchain.

What are token standards?

Before jumping into the various token types, it is important to grasp the concept of token standards. Token standards refer to a set of rules governing the construction and operation of token smart contracts on a blockchain. These standards are crucial for achieving interoperability within the blockchain ecosystem and compatibility with decentralized exchanges. Adhering to token standards ensures their functionality and seamless integration with existing platforms.

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The Ethereum blockchain is widely recognized as the leading platform for smart contracts. Within the Ethereum ecosystem, token standards are documented as Ethereum Request for Comment (ERC). However, before a standard becomes an ERC, it starts as an Ethereum Improvement Proposal (EIP) that undergoes submission to the Ethereum community. This initiates a process involving feedback, revisions, and finalization, resulting in the creation of a new ERC. Through this iterative approach, numerous token standards have emerged. In the following sections, we will compare and contrast some of the most popular token standards that have emerged from this process.

ERC-20

Proposed in November 2015, the ERC-20 token standard has garnered widespread recognition on the Ethereum blockchain, becoming the most well-known and widely adopted standard. ERC-20 was explicitly designed for creating fungible tokens, meaning each token is interchangeable with another token on a 1:1 basis.

Smart contracts deployed for ERC-20 tokens offer several key functionalities, including:

  • Transferring tokens from one account to another.
  • Retrieving the current token balance of an account.
  • Accessing the total supply of the token available on the network.
  • Approving whether a certain amount of tokens from an account can be spent by a third-party account.

Common use cases for ERC-20 tokens include virtual currencies such as Ethereum (ETH) and DAI, voting tokens, and staking tokens.

ERC-721

Proposed in January 2018, the ERC-721 token standard was specifically developed for non-fungible tokens (NFTs). Unlike fungible tokens, NFTs possess unique metadata and are not interchangeable. One notable feature of ERC-721 tokens is the ability to associate a visual representation with each unique tokenId, which can be rendered as a viewable image by decentralized applications (dApps) such as Opensea.

Smart contracts deployed for ERC-721 tokens offer the following functionalities:

  • Transferring tokens from one account to another.
  • Retrieving the current token balance of an account.
  • Obtaining the owner of a specific token.
  • Approving the movement of a specific amount of tokens from an account by a third-party account.

Some popular examples of ERC-721 tokens include POAPs (Proof of Attendance Protocol), the Ethereum Name Service (ENS), and the Bored Ape Yacht Club NFT collection.

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ERC-1155

Proposed in June 2018, the ERC-1155 token standard offers a versatile solution by combining the functionalities of both ERC-20 and ERC-721, allowing for the management of multiple token types, including fungible, non-fungible, and even semi-fungible tokens. This flexibility enables batch transactions that can include various token types, resulting in increased efficiency and reduced gas fees.

Smart contracts deployed for ERC-1155 tokens encompass the following functionalities:

  • Batch Transfer: Transfer multiple assets in a single call.
  • Batch Balance: Retrieve the balances of multiple assets in a single call.
  • Batch Approval: Approve all tokens to be transferred to a specific address.
  • Hooks: Enable the receipt of tokens with custom hooks.
  • NFT Support: Treat tokens with a supply of 1 as non-fungible tokens.
  • Safe Transfer Rules: Implement a set of rules for secure transfers.

All of the above functions are also available for single transactions, not just batch transactions.

Popular use cases for the ERC-1155 token standard include:

Gaming: The ERC-1155 standard is highly advantageous for gaming applications as it enables the transfer of various in-game assets, such as weapons, armor, and tokens, all within a single smart contract. This allows for streamlined asset management, trading, and ownership within gaming ecosystems.

DAOs: Decentralized Autonomous Organizations (DAOs) leverage the ERC-1155 token standard to operate with a diverse range of tokens, including fungible, non-fungible, and semi-fungible assets. This flexibility enables DAOs to effectively manage and govern different types of digital assets within their frameworks.

Membership/Rewards Programs: The ERC-1155 token standard provides flexibility and versatility to membership and rewards programs. Organizations can design customized programs and offer participants a wide array of benefits, incentives, and rewards.

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The Ethereum token standards, in particular, have revolutionized the creation, management, and exchange of digital assets on the Ethereum blockchain while influencing developments on other blockchain platforms as well. Whether you plan to launch a project, token, or NFT or actively participate in digital asset exchange, basic knowledge of token standards is immensely helpful when navigating this ever-changing landscape. I hope this comparison  is helpful as you continue on your journey!

Resources

https://ethereum.org/en/developers/docs/standards/tokens/

https://crypto.com/university/what-are-token-standards#:~:text=For%20blockchains%20that%20support%20smart,777%2C%20and%20ERC%2D1155.

https://blockchain.oodles.io/blog/quick-guide-ethereum-erc-token-standards/

https://coincentral.com/what-are-erc-token-standards/

https://www.kaleido.io/blockchain-blog/token-standards

https://academy.binance.com/en/articles/what-are-token-standards

https://blog.thirdweb.com/what-is-erc-1155-nft/#:~:text=Tokenized%20Real%2DWorld%20Assets%3A%20ERC,transfers%20and%20trades%20more%20efficient

https://dev.to/envoy_/ks-what-are-ethereum-request-for-comments-erc-standards-5f80

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