Token standards are guidelines on how different cryptocurrency tokens with distinct use cases need to be designed, created, used, transferred, or stored. Each blockchain system may have its own set of token standards which may or may not be compliant with the standards of other blockchain networks.
ERC-20 and ERC-721 are two of the most well-known token standards in the cryptocurrency space. Blockchain developers and enthusiasts use these standards to create cryptocurrency tokens with various functionalities on the Ethereum blockchain.
In this article, we will discuss why token standards exist and are important and will go through some of the most common token standards on the Ethereum blockchain.
Token standards are a set of guidelines and rules that dictate how different cryptocurrency tokens should act on blockchain networks.
From token design to development, issuance, distribution, transfer, storage, and sometimes even destruction, every aspect of a token throughout its lifecycle is addressed and included in a token standard.
Each blockchain network may have its own token standards which are drafted for a specific use case. Some of these token standards are compliant with one another which allows for cryptocurrency tokens of different blockchains to be compatible.
In other words, you can easily transfer a crypto asset from one blockchain to another blockchain. This is a very important feature as interoperability is one of the main limitations of today’s blockchain systems.
You can recognize the blockchain each token standard belongs to by checking their title. The Ethereum blockchain standards, for instance, start with ERC followed by a number. ERC stands for Ethereum Request for Comments.
ERC-20 is one of the most well-known token standards which is used for creating cryptocurrency tokens on the Ethereum blockchain. ERC-721 is another popular token standard that is used for creating Ethereum-based Non-fungible Tokens or NFTs.
Binance chain token standards start with BEP followed by a number while Solana-based cryptocurrency tokens are SPL-compliant. BEP and SPL stand for Binance Chain Evolution Proposal and Solana Program Library respectively.
Token standards set the road for token creation and allow blockchain developers and innovators to spend less time on building from scratch which opens more room for innovation. In other words, token standards prevent developers from re-inventing the wheel.
But, that is not all. Token standards allow for different implementations as long as the rules within the standard are followed. This adds diversity to a system and allows for more innovative solutions to be created which offer different levels of privacy, security, throughput, and speed.
And more importantly, with token standards, all implementations will follow a specific set of rules and will have the required features and services defined in the standard they were built on.
This allows applications on different blockchain systems to be able to interact with each other as by knowing the applied token standard, they will also know the basic functions each application has.
By communicating, independent blockchain networks will create a more diverse, adoptable, innovative, and comprehensive space for users to enjoy and benefit from.
The most well-known token standards are those used on the Ethereum blockchain, the second-largest blockchain in the world and the home to many decentralized applications (Dapps).
Here, we will briefly go through some of the Ethereum token standards.
We can confidently say that ERC 20 is the most popular token standard in the crypto world. Using this token standard, blockchain developers can create tokens that are interchangeable with each other. We call these tokens fungible as each unit of the token is equal to any other unit in terms of value.
In late 2015, Fabian Vogelsteller proposed the ERC-20 token standard which includes functions for transferring tokens and getting the available balance of a given account or the total supply. By applying this token standard and implementing the functions, a smart contract can be considered an ERC-20 contract.
It’s worth mentioning that the DIFX token is an ERC-20 token and was developed using this token standard.
ERC-721 is the go-to token standard for Non-fungible Tokens or NFTs. Unlike ERC-20 tokens or fungible tokens, ERC-721 tokens are unique in their own way and will have a combination of features that you cannot find in any other unit. As a result, each token has its own value that is proportional to the rarity of the features it possesses.
William Entriken, Dieter Shirley, Jacob Evans, and Nastassia Sachs proposed the ERC-721 token standard in early 2018. The uniqueness of each unit is the key feature of the ERC-721 token standard which makes it suitable for any item that is unique.
Collectibles, concert and soccer game tickets, artwork, and song tracks can be presented digitally on a blockchain system using the ERC-721 token standard.
Compared to ERC-20 and ERC-721, ERC-1155 is a less recognized Ethereum token standard. ERC-1155 allows for the creation of fungible, non-fungible, and semi-fungible tokens on the Ethereum blockchain.
In other words, ERC-1155 offers the functionality of both ERC-20 and ERC-721 token standards. Developers can even use this token standard to mix and match the functionalities of the other two and create something innovative.
Witek Radomski, Andrew Cooke, Philippe Castonguay, James Therien, Eric Binet, and Ronan Sandford contributed to the creation of the ERC-1155 token standard.
As mentioned earlier, different blockchain systems can have their own token standards some of which gained more attraction than others.
BEP-20 is among the more popular ones which is essentially the equivalent of ERC-20 on BNB Smart Chain (BSC). With this information, you can probably guess what the BEP-721 token standard is used for on BSC.
Tron network followed the same approach in naming its token standards. The TRC20 and TRC721 token standards are the equivalent of the ERC-20 and ERC-721 token standards. It’s worth mentioning that both token standards are fully compatible with the Ethereum token standards.