TOKEN STANDARDS — ERC20 and others

Kriptown
Kriptown
Sep 6, 2018 · 4 min read

While Ethereum functions as a blockchain system that mainly depends on ether as its currency, several tokens are built on its network in the form of smart contracts that can be held, invested or traded. As Bitcoin reigns as the biggest share of the total cryptocurrencies’ market capitalization, ERC20 tokens along with Ethereum would topple Bitcoin’s position if put together. Not unlike how the HTTP protocol authorizes the internet to scale to its current levels, the ERC20 is a protocol standard that enables the growth of the blockchain by setting commands that tokens on the Ethereum network need to abide by.

An ERC20 token is the abbreviation of Ethereum Request for Comments, which stands for the official protocol that holds improvement proposals to the Ethereum network, while the number 20 prefix identifies as the proposal’s unique ID. Firstly proposed by Ethereum lead DApp developer Fabian Vogelsteller on 19 November 2015, this protocol contributed to the acceleration of DApps — decentralized applications — development into a platform that has common universal standards. Moreover, it enabled not only developers with technical skills, but also businesses to tokenize their projects. It also allows these projects to raise money for it through a form of crowdfunding called ICO (Initial Coin Offering) in which contributors are redeemed with the projects’ tokens.

It is worth noting that ERC20 is not a code nor a technology itself, but a specified set of standards for tokens that include very specific technical properties that enables them to be ERC20 tokens. These protocol standards are necessary for tokens to trade on exchanges, transfer them, inquiring their balance at certain addresses and evaluate the total supply of these tokens. Each developer could come up with differed codes and interfaces for the same function for a token. However, such activity could lead to duplications and inconsistencies for the end user which was very common before the ERC20 protocol standards. For example, the user had to know the specific identification of the token’s properties in order to interact with it, and the lack of a unified user-friendly standard made it even harder for him to grasp the functions of many tokens all at once. Another challenge that exchanges faced with custom tokens was the process of tweaking their interface in order to list them on their platform.

The standardization of tokens under common specifications brought several advantages including the ease of interacting with many types of tokens at once, while also giving developers the comfort of following a specific standard instead of creating their own specifications from scratch. In order to be identified as an ERC20 token, these functions go through the established standard protocol are mandatory: defining the set of functions, their names, the arguments they take, the return value they have, the functions’ expected behaviors and finally the set of events that the tokens need to emit. All that is required from the developer and the user is to understand the ERC20 standards. Moreover, it makes it much easier for exchanges to list tokens with a similar standard and encourages the creation of more ICOs on the Ethereum network. For instance, Coinbase announced in the first quarter of 2018 that they will add several ERC20 tokens on their exchange.

Other types of ERC tokens that are worth noting are the following:

ERC223: This is a type of token that was proposed by a developer who aims to solve some ERC20 related issues by providing some advantages such as the avoidance of accidentally losing tokens inside contracts that are not designed to operate with the mainly sent tokens. Another advantage of ERC223 tokens is that they spend less GAS than ERC20 tokens. However they are still a proposal and not a standard yet. Therefore, major ICOs are still favoring the ERC20 standard that is already established and operational. Finally, exchanges need to make some modifications in order to adopt ERC223 tokens, which some major exchanges are not willing to do at the time being.

ERC827: This is an extension to the ERC20 standard that authorizes the transfer of tokens while allowing them to spent by a third party after the holder’s approval. Henceforth, ERC827 tokens are compatible with ERC20 tokens. This type of standard is highly practical when it comes to spending the tokens by the third party based on agreements between him and the holder, while also being reused by other applications.

ERC777: It is a newly emerging fungible token standard based on the ERC820 standard and aims to solve ERC20 problems such as the minimal transaction handling of Ethereum that caused the loss millions of dollars by offering a much wider transaction handling mechanism compared to the latter. The main benefit that ERC777 tokens offer is the introduction of a new method of contract interface recognition. Since Ethereum does not know what are the certain functions that the contract implements, it allows everyone to invoke the central registry of contracts on the Ethereum network known as ERC820 to know if a certain address does, in fact, support these functions.

ERC721: While ERC20 and ERC223 are fungible, ERC721 is a proposal to make non-fungible tokens that make it easier to trade tokens treated in the same manner and make them identical. However, sometimes it is required to have unidentical tokens within the platform in order to implement different parameters added and prices to these tokens. For example, each WPR token represent a different time frame, type and amount of energy that it holds, making them unidentical with each other.

Co-written by Kriptown and CoinWisely.

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