ERC20 vs ERC721 vs ERC 1155
Ethereum is an open-source, decentralized blockchain with EVM compatibility and smart contract functionality that enables anyone to build and run decentralized applications on its ecosystem. Ethereum further empowers the global trade and finance industries with its rich ecosystem and ability to support various tokens such as Fungible tokens, semi-fungible tokens, and non-fungible tokens (NFTs).
On Ethereum, tokens can represent virtual currencies (that hold real-world value), digital items, lottery tickets, fiat currencies like USD, and even a company’s share integrated on the Ethereum blockchain and used for various purposes. A robust standard must back such powerful features of Ethereum tokens, which is why ERC token standards have been developed.
Witnessing the need for change, the Ethereum community introduces new token standards to help enterprises streamline their business operations in the Ethereum ecosystem. For this guide, we are keeping our discussion up to the three major token standards-ERC20 vs ERC721vs ERC1155.
What does ERC token standards?
ERC stands for Ethereum token standards. These standards demonstrate certain rules that every Ethereum token must abide by, and these are technical guidelines applicable to everyone who seek to create a token in Ethereum’s ecosystem.
ERC-21, ERC-721, and ERC-1155 are the three prevalent ERC token standards that most industries utilize to create their tokens. ERC standards, in a way, define smart contract standards for writing the smart contract that regulates the token activities on Ethereum.
Ethereum offers a more improved infrastructure to support innovative use cases to achieve higher growth with every new ERC standard.
Note that enterprises can also create tokens on Ethereum that do not abide by any token standard. Still, these tokens lack compatibility with important components of Ethereum, such as DeFi exchange and decentralized wallets.
ERC20 vs ERC721 vs ERC 1155: Explanation
From ERC-20 to ERC-3475, the evolution of the ERC tokens has been a great effort to keep Ethereum’s momentum high and make it a more mainstream blockchain with many novel use cases. Let’s concentrate on the three major token standards-ERC20 vs ERC721 vs ERC 1155.
ERC-20: Fungible tokens
ERC-20 tokens is the first token standard that the Ethereum blockchain introduced to enable the creation of fungible tokens. Every ERC20 token is interchangeable with each other. Fungible tokens, for example, represent assets whose value can be replaced with something of equal value like Fiat currencies, an ounce, and ICOs.
- Virtually, the ERC-20 token can represent the following digital assets:
- Tickets for an online contest or scheme.
- Real-world financial assets such as a company’s stock, share dividend, etc.
- Reputation points from online games.
- Other redeemable points.
XRC-20 tokens are Ethereum’s solution for streamlining the procedure of token integration and their regulation. This token standard further helps developers create a smart contract for tokenizing any “Fungible” asset. Eventually, the smart contract regulates a decentralized application built on Ethereum.
ERC-721: Non-fungible tokens
The use of non-fungible tokens or NFTs is increasingly popular. From tokenizing digital content to a real-world asset, NFTs have been unlocking many benefits for people.
On Ethereum, a token representing a one-of-kind digital asset must comply with the ERC-721 token standard. One widely known NFT- Cryptokitties, was built on the Ethereum blockchain.
To easily understand the role of ERC-721, refer to the following statement:
ERC-20 is important to discover new cryptocurrencies. Likewise, ERC-721 is essential to create new and interesting NFTs that represent immutable ownership proof. Let’s understand what can ERC-721 represents:
- A unique digital content piece.
- Social media content, including Reels, Tweets, and pictures.
- Gaming assets and collectibles.
- Gaming characters.
The use of NFTs is vast, and every new technology utilizes NFTs or NFT technology to find amazing possibilities in the virtual business world. Since Ethereum allows the creation of NFTs, a rapid increase in the NFT integration process started to create challenges for this blockchain, such as traceability and ownership issues.
ERC-721 token standard addresses all these challenges, and users provide someone with the ownership of unique digital assets, trackable through Ethereum’s public ledger.
ERC-1155: Multi-standard tokens
ERC-1155 is a multi-token standard that combines the attributes of both ERC-20 and ERC-721 token standards. It can be better explained as a common token Smart contract interface for various Ethereum tokens: fungible, semi-fungible, and non-fungible tokens.
An enterprise willing to create and issue multiple tokens can leverage ERC-1155. It eliminates the hassle of writing separate smart contracts for each token standard (i.e. ERC-20, ERC-721, or more) and helps them seamlessly manage all their tokens.
ERC-1155 token can represent the following:
- Redeemable shopping vouchers
- ICOs, etc.
ERC-21, ERC-721, and ERC-1155 are currently the prevalent token standards. However, Ethereum has a roadmap defined to introduce new token standards to maintain the variation in the tokens. For example, ERC-3475 is the latest addition to the token standards list, and it supports token creation for managing callable bonds, also known as redeemable bonds. Likewise, the new and improved token standards will help enterprises launch more successful blockchain projects.