Ethereum Token Standards

Today’s crypto sphere has a plethora of cryptocurrencies, such as Bitcoin, Litecoin, Ethereum, Aave, Synthetix, and several others to choose from. However, after Bitcoin, Ethereum has captured the second highest market value of about one hundred and forty-two billion USD. As all other cryptocurrencies, Ethereum can be used worldwide and without the interference of a third party.

Ethereum is a decentralized blockchain-based framework built to run the smart contracts written in Solidity programming language. All of these decentralized applications built using Ethereum are very well shielded from deceit, duplicity, latency, and interference from third parties. These decentralized applications or Dapps are the reason why Ethereum has become so popular and why some people believe that Ethereum might even surpass Bitcoin in the longer run, a thought well-known as flippening.

However, a major aspect of these Dapps is the use of a token to facilitate the required use-case. Whenever a new application is developed in the Ethereum crypto network, if no suitable token exists already, a new token is created. The entire token development process is regulated by the Ethereum Token Standards or ERC.

Let’s look at the ERC standards that you should know about Ethereum including those you have never seen before!

What is ERC?

The Ethereum Request for Comment, also abbreviated as ERC, is the overall framework approach and community building in the Ethereum environment. Token standards such as ERC-20, ERC-721, ERC-777, to name a few, are all mentioned in the request for comment which define different standards for the token development. ERC also covers name registries, library/package formats, and several more, aside from token standards.

In short, ERC is the one that regulates the Ethereum network’s entire applicability.

We will now take a deeper look into the Ethereum token standards to understand their role in building a new decentralized world.

ERC-20

ERC-20 is one of the most significant and prominent token standards among all Ethereum token standards. ERC-20 is a technological standard in the deployment of tokens for all smart contracts on the Ethereum network and includes a list of rules to be implemented by all Ethereum-based tokens.

A collection of six functions used by smart contracts within the Ethereum ecosystem are specified by the ERC-20 specification, including how tokens are exchanged and how users can access the token data. A concise overview of each function is explained below:

● total Supply() — It specifies the total quantity of tokens to be generated for trade within the token economy of a given project. It is used with a particular ERC-20 token to get the token supply.

● transfer() — It distributes the tokens in the original allocation, for instance in an Initial Coin Offering (ICO), to user wallets. The simplicity of giving investors their tokens after the ICO has been finished is a major factor for the success of ERC-20 tokens. This function will transfer all the tokens to one wallet upon token formation or allocate them to ICO investors.

● balance of() — It holds a record of each user’s wallet’s token balance. It keeps track of the balance of tokens in any Ethereum wallet.

● approve() — It maintains constant token supply within the token economy, effectively prohibits users from generating additional tokens for their benefit from thin air. Used to approve other accounts to delete a certain number of tokens from the client upon function call.

● transfer From() — It helps token owners to share tokens with each other. This function enables token holders after the initial distribution happens to swap tokens with each other.

● allowance() — It guarantees that the transactions are legitimate before applying them to the blockchain. This tests the sending address to ensure that appropriate tokens are used to allow a transaction, whether the transactions are not legitimate. When approve() is used, allowance() is used to see how many tokens are permitted to be deducted from the original account by the approved account.

The smart contracts are essentially ERC-20 tokens running on top of the Ethereum blockchain, but they can also function as digital assets and can represent a host of artifacts in the Ethereum ecosystem. Token developers decide how their token interacts with their business and how to treat users encounters with tokens. These tokens are usually fungible but Ethereum also allows us to create non-fungible tokens which takes us to the next Ethereum standard.

ERC-721

ERC-721 is a token standard that defines non-fungible tokens (NFTs) on the Ethereum blockchain. A significant concept of the money supply is fungibility, which means that any $10 bill must be regarded the same and have the same value as any other bill of the same denomination.

The core advantage of the ERC-721 standard, unlike other ERC specifications, is the ability to construct non-fungible tokens (NFTs), which means that the tokens can contain different values when exchanged within the same ecosystem. This goal allows conventional individual real-world assets to be tokenized, such as real estate, artwork, precious historical artifacts, etc., and opens the door to exciting solutions across numerous industries.

The ERC-721 specification was published in order to allow anyone to create tokens on Ethereum that are completely separate from each other. There will never be two ERC-721 tokens that are the same, and they can be considered one-of-a-kind collectibles. The ERC-721 specification can currently be most known for the Ethereum-based collectible game ‘CryptoKitties’. In order to assess appearance and traits, CryptoKitties is an online game in which users can assemble and breed virtual cats with distinctive genomes. Every kitty is represented by an Ethereum ERC-721 coin, making sure they are all one-of-a-kind and can never be replicated, removed from the owner, or destroyed.

However, exciting emerging projects such as 0xcert and 0x protocol also offer a glimpse into the future, where real-world assets will be tokenized and the Ethereum blockchain will be used to transparently trade ownership of everything from music rights to vintage wines.

ERC-777

Apart from ERC20, ERC777 is a newer standard for fungible tokens that is based on enabling more complex connections as tokens are exchanged. More broadly, it puts tokens and ether even more closely together by having the equivalent of a msg.value field.

A few quality-of-life changes are also provided by the standard, such as removing the confusion surrounding decimals, minting, and burning with appropriate occurrences, among others, but the signature feature is to earn hooks. A hook is merely a contract feature that is called when tokens are sent to it, meaning accounts and contracts may react to tokens being received. The ERC777 protocol is also backward compatible with ERC20, so you can deal with these tokens as if they were ERC20 using the standard features, while also enjoying all the pleasantries, such as sending hooks.

ERC-1155

A smart contract interface that can represent any number of forms of the fungible and non-fungible tokens is outlined by this standard. Current specifications such as ERC-20 require different contracts per token form to be deployed. A single non-fungible index is the token ID of the ERC-721 specification and the community of these non-fungibles is implemented as a single contract with settings for the whole array. The ERC-1155 Multi Token Standard, on the other hand, requires each token ID to represent a new configurable type of token that may have its own metadata, distribution, and other attributes.

A particular token or token type in a transaction is indicated by the “_id” argument found in each function’s argument set. For each token form or series, token standards like ERC-20 and ERC-721 require a different contract to be deployed. This puts a number of unnecessary bytecodes on the blockchain of the Ethereum and restricts those features by splitting each token contract into its own allowed address. With the rise of blockchain games and platforms like Enjin Coin, game developers may be creating thousands of token types, and a new type of token standard is needed to support them. However, ERC-1155 is not specific to games and many other applications can benefit from this flexibility.

With this architecture, new features are possible, such as the conversion of several token forms at once, saving transaction costs. Trading of several tokens (escrow / atomic swaps) can be built on top of this standard and it reduces the need to individually “approve” individual token contracts. Many fungible or non-fungible token forms in a single contract are often simple to describe and combine.

Final words

It is highly likely that you have to face new functionality and bug fixes for the current tokens as more and more ERC token specifications emerge or upgrade. To ensure that your network offers the most value to end users along with a stable use-case, it is important to select which digital token to use with your blockchain project along with the most appropriate token standard. Getting the tokenomics correct should always carry the utmost significance and we hope this blog helps you in making an informed decision.