Ethereum token standards are a set of rules that define how tokens are to be created, managed and interact on the Ethereum blockchain. Ethereum Token Standards essentially help create tokens on the network. These tokens are fungible and accepted across the ecosystem, so developers highly demand them.
Ethereum Token Standards have a few rules outlining features. These pertain to checking how many tokens an address has and transferring tokens between addresses, to mention a few. They are compatible with many wallets, applications, and exchange platforms. They are used as utilities, stablecoins, and/or security tokens. This article explores the world of Ethereum Token Standards and reviews their importance in interoperability and functionality within the Ethereum network.
Understanding ERC (Ethereum Request for Comments)
ERC is an acronym for Ethereum Request for Comments. It is a way through which the Ethereum community creates and agrees on rules for how things should work on the network. Each ERC set has rules for tokens, like how to send them, approve them, or track who owns them. These standards make sure that the tokens and apps work well together. Since anyone in the community can suggest an ERC and it gets reviewed before approval, ERCs play an important role in keeping the Ethereum network growing and improving.
ERC Standards have expanded into several different types, including ERC-20, ERC-1155, and ERC-721, among others. Every ERC Standard is different and has a unique trait in terms of features and purposes.
Overall, the motive is to strengthen Ethereum’s token economy. What makes these tokens special is their nature of being fungible. They are similar and can be utilized interchangeably.
ERC-20: The Foundation of Fungible Tokens
ERC-20 is the most widely adopted token standard. Think of it like universal plug points, it all tokens follow the same design they can fit and work in any Ethereum wallet, exchange, or app without any extra effort.
Every ERC-20 will follow a set of basic functions that are written into its smart contracts. These functions act like rules of behaviour where they instruct the token how to move, who owns what and how others can interact with it. The important functions include total supply, balance of address, transfer tokens, approve addresses and amount, transfer from, allowance. It further offers optional functions like ticker symbol, token’s name, and decimal places.
ERC-20 is used mainly in projects developing utility and governance tokens for decentralized applications, such as dApps. These tokens operate on the Ethereum network and within its ecosystem. Some examples of popular ERC-20 are LINK- which is a utility token for the Chainlink oracle network, UNI (Uniswap)- governance token of the Uniswap DEX, and USDT (Tether)- stablecoins pegged to the US dollar
ERC-721: The Rise of Non-Fungible Tokens (NFTs)
ERC-721 is the Ethereum standard for non-fungible tokens (NFTs). Here, each token is unique and it cannot be replaced one-to-one, unlike ERC-20, where every other token is the same. Each NFT has its own token ID. This ID helps you prove ownership and sets its apart from every other token.
This makes ERC-721 the backbone of NFTs, whether it is a piece of digital art, an in-game item or even virtual land.
The core function of ERC-721 include showing how many NFTs a wallet owns, identify the current owner of a specific NFT, transfer of NFTs, lets the owner gives another address permission to transfer a specific NFT, allow or deny an operator to manage all NFTs owned by someone.
Its use cases include digital art such as Bored Ape Yacht Club, gaming items such as weapons, skins or characters with unique characters, virtual real estate in metaverses, tokenized real-world assets and event tickets and collectibles. What makes ERC721 different is its ability to give digital assets its uniqueness, ownership and traceability.
ERC-1155: The Multi-Token Standard
ERC-1155 is known as the multi-token standard. It focuses on integrating elements that have greatly benefited its predecessors. Enjin developed it, and the developer-defined it as a single, smart contract that can govern several tokens. So this ERC can handle both types of tokens in a single smart contract.
The idea was to navigate a way around the limitations that ERC-721 posed in terms of rigidity with batch transfers. It required users to execute multiple transactions. ERC-1155 enables that flexibility.
Another benefit is a reduction in gas fees as many tokens can be sent in one transaction, also known as batch transfers. The project utilizing ERC-1155 is Decentraland in addition to Enjin. This is ideal for projects where the users are bound to use a mix of identicals and unique assets.
For better understanding, let’s take an example of a blockchain game. Imagine a blockchain game where you earn gold coins (fungible, ERC-20) and you also win a legendary sword (non-fungible, ERC-721). Here with the help of ERC-1155, both of these assets can exist in the same smart contract. Now, here you can also trade both these gold coins and sword together in one transaction, this makes the transaction process faster and cheaper than doing it separately.
| Feature | ERC-20 | ERC-721 | ERC-1155 |
| Token Type | Fungible (all tokens are identical) | Non-Fungible (each token is unique) | Both fungible and non-fungible in one contract |
| Uniqueness | No uniqueness (1=1) | Each token has a unique ID | Can issue both unique and identical tokens together |
| Divisibility | Divisible (e.g., 0.5 ETH) | Indivisible (you cannot own half an NFT) | Supports both divisible and indivisible tokens |
| Common Use Cases | Stablecoins, governance tokens, utility tokens | Digital art, collectibles, gaming items, land deeds | Gaming assets, metaverse economies, mixed assets platforms |
| Contract Structure | One contract = one token type | One contract = one NFT collection | One contract = many token types (fungible + non-fungible) |
| Transfer Efficiency | One token per transaction | One token per transaction | Batch transfers (multiple tokens in one transactions) leads to cheaper gas fees |
| Examples | USDT, USDC, UNI, LINK | CryptoKitties, Bored Ape Yacht Club | Enjin, Sandbox, Gods Unchained |
Other Notable Token Standards
Other notable token standards are ERC-777, ERC-223, ERC-621, and ERC-827.
ERC-777 enhances the functionality of ERC-20. It introduces a hooks aspect that bundles token transfers and contract notifications into a single message. This makes it more efficient to receive and send tokens.
ERC-223 also extends the ERC-20 model. It basically addresses the bugs in ERC-20 that can lead to token loss. ERC-223 fixes that by facilitating a seamless transfer of tokens to wallets and smart contracts alike. It also maintains most of ERC-20’s original features.
ERC-621 allows holders to redeem their tokens in addition to its burning mechanism. The objective is to reduce the supply and control the prices using the scarcity principle.
ERC-827 is a proposed token standard. If approved, it will expand the utilities of ERC-20 and ERC-223 via support for additional transaction data. Jacques Dafflon, Thomas Shababi, and Jordi Baylina introduced ERC-827 in 2018. A unique feature is approveAndCall. It allows token holders to authorize a transfer while triggering a function call in the same transaction.
ERC-4626 is a standard for tokenized vaults that manages a single ERC-20 token and issues shares representing proportional ownership. It standardizes deposits, withdrawal, and accounting functions. Due to this, integration across DeFi applications becomes easier and safe.
ERC-864 allows shared ownership of NFTs. Here ERC allows multiple users to hold divisible shares of a single NFT. So practically it allows fractional ownership.
ERC-865 is known as Pre-signed Token Transfer where a function is introduced that allows token holders to delegate transfers to a third party.
ERC-1203 is known for Cross-Token Payments. This allows tokens to interact across contracts for payments. It lets the apps accept fees in various tokens and not just one token. With this flexibility make dApps more user-friendly and interoperable.
ERC-1132 is also known for Token Locking. This standard allows you to lock and unlock tokens on ERC-20. This is useful for vesting, staking, and escrow where funds must be held securely. It is known for building trust by making sure that the tokens do not move till the conditions are fully met.
Future of Ethereum Token Standards
Suffice it to say that upcoming Ethereum Token Standards aim to enhance their predecessors’ offerings and will further impact the price of Ether.
Looking ahead, the aim is to make the tokens more flexible, secure and practical for real-world use. With these developments, the friction in payments will be reduced, trust in token distribution will be improved and these developments will open doors for more advanced dApps.
Since Ethereum’s development is community based, the success of these standards will depend on adoption and collaboration. As they mature, they are expected to shape the next wave of decentralized applications.
See less
