What Are The Token Standards Like ERC 20 vs ERC 721 vs ERC 1155?
Ethereum was created to address the shortcomings of Bitcoin, the first-generation blockchain. To expand the use cases of blockchain across major industries, Vitalik Bueterin proposed the idea of an open-source blockchain with integrated smart contract functionality. The Ethereum ecosystem, which has been dubbed “100% programmable,” invites blockchain enthusiasts from all over the world to build blockchain-powered solutions on top of it and contribute to its growth.
Ethereum token development is one of the most common development opportunities, as it supports the entire network as well as a number of interconnected projects that are all running at the same time. Innovative companies use Ethereum-based tokens as internal currencies to buy, sell, and trade within the ecosystem, and these tokens can represent the value and service.
Now that Ethereum allows for token development, its community has established some guidelines to ensure that tokens created on the platform are compatible with existing ecosystems and meet specific user needs. It’s also worth noting that Ethereum allows users to create fungible tokens without adhering to any ERC standard.
These tokens are incompatible with everything else on Ethereum, including Defi exchanges and wallets. As a result, ERC Token standards are required to provide basic guidelines for the development of various smart contracts. These standards change over time and provide a better interface for ERC token development, allowing businesses to cater to their unique user needs.
This report includes a detailed analysis of Ethereum token standards as well as a closer look at the top three ERC token standards in use today: ERC20, ERC721, and ERC1155.
What is ERC for Ethereum?
(ERC) is an acronym for Ethereum Request for Comments. It’s similar to technical documents that outline the methods, behaviours, innovation, and research that a group of developers and users who want to use the Ethereum ecosystem should follow.
You might be wondering who has authority over the ERC’s creation and management. ERC-related documents are written by Ethereum’s smart contract programmers to describe the set of rules that every Ethereum-based Token must follow. They also review and comment on these documents on a regular basis in order to improve them.
What really are the ERC token standards?
The ERC token standards define the rules that apply to all ERC tokens created on the Ethereum blockchain. The Ethereum community reviews these rules on a regular basis, and amendments are made as needed. Furthermore, ERC standards are designed to allow ERC tokens to interact with one another in a seamless manner.
ERC-20, ERC-721, and ERC-1155 are the three most widely used ERC token standards or protocols, with applications in a variety of industries. These token standards have the full support of the Ethereum community, and they differ in terms of specific features and functionalities.
Before we can understand what the token standards are or how they work, we must first grasp the fundamentals of Ethereum smart contract standards. It is defined by the following statements:
- Smart contracts describe rules that a smart contract programmer should comply with to leverage the underlying benefit of the Ethereum network.
- These standards are applicable for blockchains that support the development of smart contracts and decentralized applications (dApps).
- Smart contract standards contain token standards, library themes & formats, name registries, and related details.
Smart contract standards are also known as the ERC tokens standard. To enable essential functions such as token creation, transaction processing, spending, and so on, the smart contract on Ethereum must adhere to the standards or rules. Ethereum unlocks the true potential of its ecosystem and enables the development of more specific smart contracts, contributing to the network’s growth, by introducing the improved ERC standards.
ERC-20 token standards
ERC-20 was first proposed in 2015, and two years later, in 2017, it was finally integrated into the Ethereum ecosystem. On the Ethereum blockchain, ERC-20 introduces the token standard for creating fungible tokens. To put it another way, ERC-20 is a set of properties that enable the creation of identical tokens.
For example, an ERC-20 token representing a currency can function similarly to Ethereum’s native currency, Ether. That is, the value of one token will always be the same as the value of another token, and they will be interchangeable. The ERC 20 token established guidelines for the creation of fungible tokens, but what does fungible mean in practice? Here’s the example:
- Reputation points of any online platform.
- Lottery tickets and schemes.
- Financial assets such as shares, dividends, and stocks of a company
- Fiat currencies, including USD.
- To support token development and regulate them on the blockchain network, Ethereum requires a robust standard to bring uniformity across all operations. This is where the ERC-20 protocol comes into play.
ERC-20 token standards are widely used by decentralised world developers for a variety of purposes, including developing interoperable token applications that are compatible with the rest of the Ethereum ecosystem’s products and services.
Characteristics of ERC-20 tokens
- ERC 20 tokens are another name for ”fungible tokens”.
- Fungibility defines the ability of an asset or Token to be exchanged for assets of the same value, say two 1 dollar notes.
- Each ERC-20 Token is strictly equivalent to the same value regardless of its feature and structure.
- ERC tokens’ most popular application areas are Stablecoins, governance tokens, and ICOs.
ERC-721: Non-fungible tokens
To comprehend the ERC-721 specifications, you must first comprehend NFTs (non-fungible tokens). Check out our in-depth explanation of NFTs and their role in the decentralised blockchain world.
Dieter Shirley, the founder and CTO of Cryptokitties (the widely used non-fungible tokens), first proposed creating a new token type to support NFTs. The proposal will be considered for approval later this year. It specialises in NFTs, which means that a token created in accordance with the ERC-721 rules can represent the value of any digital asset on the Ethereum blockchain.
With that, we can make the following conclusion: if ERC-20 is important for creating new cryptocurrencies, ERC-721 is critical for digital assets that represent someone’s ownership of those assets. ERC-721 can be used to represent the following things:
- A unique digital artwork
- Tweets and social media posts
- In-game collectibles
- Gaming characters
- Any cartoon character and millions of other NFTs….
This unique type of Token opens up a world of possibilities for businesses that use NFTs. Similarly, ERC-721 poses difficulties for them, and ERC-721 standards are used to address these difficulties.
It’s worth noting that each NFT has a tokenId uint256 variable. As a result, the pair contract address-uint256 tokenId must be unique for each EBR-721 contract.
Furthermore, dApps should include a “converter” to control the input and output of NFTs. For example, the converter takes tokenId as an input and produces non-fungible tokens like zombie images, kills, gaming collectibles, and so on.
Characteristics of ERC-721 tokens
- ERC-721 tokens are the standards for non-fungible tokens (NFTs).
- These tokens cannot be exchanged for anything of equal value since they are one-of-a-kind.
- Each ERC-721 represents the value of the respective NFT, which may differ.
- The most popular application areas of ERC-721 tokens are NFTs in gaming.
ERC-1155: Multi-token Standard
Witek Radomski (Enjin’s CTO) introduced an all-inclusive token standard for Ethereum smart contracts by combining the capabilities of ERC-20 and ERC-720. It’s a standard interface for creating fungible, semi-fungible, and non-fungible tokens, as well as other token configurations, using a single smart contract.
As Radomski explained, the way existing token are designed would require a multi-step process to achieve atomic swap offers -exchanging one kind of token for another without an intermediary.
This shows how the 4 transactions required to swap 2 tokens. Every additional token type added would need an additional approval step.
The ERC-1155 design permits for a swap of any amount of tokens in only 2 steps:
ERC-1155 is backward-compatible with ERC-721 and developers can now add an adapter to make ERC-1155 act like ERC-20 and ERC-721. The ERC-1155 standard has also been future-proofed.
ERC-1155 is a game-changer because it allows you to fulfill all of your token development needs and solve problems using a single interface. The goal of creating such a one-of-a-kind token standard was to create a robust smart contract interface that could represent and manage various types of ERC tokens.
Another advantage of ERC-1155 is that it enhances the overall functionality of previous ERC token standards, resulting in a more efficient and scalable Ethereum ecosystem.
Characteristics of ERC-1155 tokens
- ERC-1155 is a smart contract interface representing fungible, semi-fungible, and non-fungible tokens.
- ERC-1155 can perform the function of ERC-20 and ERC-720 and even both simultaneously.
- Each Token can represent a different value based on the nature of the token; fungible, semi-fungible, or non-fungible.
- ERC-1155 is applicable for creating NFTs, redeemable shopping vouchers, ICOs, and so on.
Like Pentas, we as a NFT marketplace already implemented ERC 721 & also ERC 1155. Check our website to know more about this.
A comparison between ERC 20 vs. ERC 721 vs. ERC 1155
You must understand the differences between ERC-20, ERC721, and ERC 1155 if you want to create any type of token on the Ethereum blockchain. You can choose the right token standard that perfectly aligns with your business-specific needs if you can distinguish between these most common ERCs.
Source: https://www.leewayhertz.com/erc-20-vs-erc-721-vs-erc-1155/
What are the specific use cases of ERC20, ERC721, or ERC1155?
Even though Ethereum strives to make token development as simple as possible with each new ERC standard, we must acknowledge that all existing token standards are still relevant today and for various industries and user needs. Here are some examples of how ERC tokens can be used.
Use cases of ERC-20:
ERC-20 is a protocol for organising crowdfunding campaigns, issuing initial coin offerings (ICOs), and launching new crypto currencies into the market.
Use cases of ERC-721:
ERC-721 represents someone’s ownership of digital assets, mainly used as NFTs in the gaming industry, NFT marketplaces, and Metaverse platforms.
Use cases of ERC-1155:
A multi-utility token standard is widely used in online gaming. To exchange values, games now have fungible elements such as life/energy, NFTs such as gaming characters, and fungible native currencies.
