Difference between ERC20 and ERC721 Tokens
We have all heard of tokens or coins being created on Ethereum blockchain. Ethereum’s ERC-20 standard has made it easy for developers to create new tokens and for wallets and exchanges to standardize the listing and exchange of these tokens. But there is another type of token on Ethereum Blockchain that serves a different purpose and is not understood well. This is the ERC-721 type of token.
ERC-20 tokens are called fungible tokens whereas ERC-721 tokens are called non-fungible tokens. Let us look at the differences.
Fungible tokens of the type ERC-20 are those that represent a value, like a currency note. They are interchangeable and not unique. Most of the tokens that we see on exchanges today are fungible tokens on Ethereum blockchain. These tokens facilitate transfer of value. Also, these tokens are divisible. This means you can give 0.1 of your token to someone else.
Non-fungible tokens of the type ERC-721 are those that represent a unique asset, like a certificate of ownership for a painting. These tokens are not interchangeable and although they hold value, that value is not the same as any other token of the same type. ERC-721 tokens are non-divisible which means you cannot give half of your token to someone.
An example of such a token would be Cryptokitties. Cryptokitties was a popular fun project where people bought digital cats and the ownership was registered on a blockchain with the help of non-fungible tokens. Every token was tied to a particular cat and it was different from the token that represented any other cat.
Although we see a flood of ERC-20 tokens, use cases of ERC-721 tokens are just emerging and yet to be explored. The advantages of an asset — whether a painting or a bond or a house or a car — represented as a token on an ERC-721 blockchain is its security of ownership, ease of transfer of ownership and an immutable history of ownership that is transparent.
Ethereum has helped establish standards that will be used in dealing with different use cases and while developing a token, one has to choose which standard will satisfy the particular use case.
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