A Short Guide to Token Standards on Ethereum
Tl;dr — There are a number of standards from which tokens on the Ethereum blockchain are created. Each one has its own standard protocol and specification depending upon the particular application and utility. As the applications of blockchains continues to expand beyond traditional use cases into real world use cases such as payments, licensing, intellectual property, royalties, insurance contracts, digital identity, and others, the number of token standards will continue to expand and evolve to fit the particular real-world utility.
This article will examine the types of token standards on Ethereum, what they are, and their various applications.
ERC is a standard by which tokens are issued on the Ethereum blockchain. ERC stands for Ethereum Request for Comments. These are application-level specifications including registries, standards, and library formats.
Anyone who wants to issue a token on the Ethereum network will have to issue it with a particular token standard and gain approval from the community.
ERC standards specify a common collection of required functions for a specific token. This allows smart contracts and apps to interact and communicate with the token in a predictable and safe manner.
The most common ERC standards include:
- ERC-20 — This is the most commonly used standard to date. Many of the cryptocurrencies in existence on the Ethereum blockchain are ERC-20 tokens.
- ERC-721 and 1155 — These are standards for non-fungible tokens (NFT’s). In comparison to cryptocurrencies, NFT’s are non-fungible meaning that they can not be exchanged for one another. Most of the Ethereum-based NFT’s listed on OpenSea and Rarible are ERC-721 and 1155 tokens. These next generation token standards have the potential to tokenize everything in the physical world into the digital form including art, collectibles, real estate, insurance contracts, and potentially everything in the physical world into the digital form.
- Others — ERC-725 and 223, ERC-1400 and 1404.
ERC-725 is a token standard whose utility will be in establishing a standard for blockchain-based digital identity. Using this standard going forward, machines, objects, groups, and individuals can all be defined and managed with ERC-725 allowing individuals to own and control their identity. ERC-725 would enable a portable and open identity standard, allowing individuals to take their identity and use it through multiple apps and platforms, in a fully open, transparent, scalable, and decentralized manner.
ERC-223 is a token standard establish by European Research. ERC notifies users when they have sent tokens to the wrong contract address, notifies them, and cancels the transaction.
ERC-1400 and 1404 — are security token standards.
Conclusion: There are a number of standards from which tokens on the Ethereum blockchain are created. Each one has its own standard protocol and specification depending upon the particular application and utility.
I anticipate that as the applications of blockchains continues to expand beyond cryptocurrency, NFT’s, DeFi, Web3, and the metaverse into real world use cases such as payments, licensing, intellectual property, royalties, digital identity, and others.
We’ve come a long way from the early days. However, much work remains to be done for mass adoption.
About: Dr. Christopher Loo is a physician who became financially free at the age of 29, and retired early at the age of 38, as a result of making strategic investments after the 2008 financial crisis. A graduate of the MD-PhD program offered jointly through the Baylor College of Medicine and Department of Bioengineering at Rice University, he is the author of “How I Quit My Lucrative Career and Achieved Financial Freedom Using Real Estate”, and is the host of the Financial Freedom for Physicians Podcast. He is a regular contributor to KevinMD and has spoken about the importance of financial literacy for Passive Income MD, the White Coat Investor, Board Vitals, SEAK Non-Clinical Careers, SoMe Docs, Doximity, Medpage Today, FinCon, and other high-profile financial brands geared towards high-income professionals. He is passionate about the role that crypto, fintech, and innovation will play in enabling financial freedom, economic inclusion, access and opportunity for the entire world in the upcoming decades.