In the series of DeFi explanation blog posts, today we’ll be discussing Ethereum token standards – majorly ERC-20 & ERC-721. Ethereum is currently the biggest blockchain network with hundreds of thousands of tokens listed on its network.
The exponential growth of DeFi can be credited to the Ethereum blockchain network and its permissionless nature allowing developers across the globe to create tokens on its network without going through the tedious process of creating a new blockchain. These tokens can represent various kinds of assets such as security & utility tokens, NFTs, or even real-world assets.
So, let’s delve into the Ethereum token standards and find out how they work, their types, and what they represent.
What are Ethereum Token Standards?
In essence, the Ethereum blockchain network is a complete ecosystem for decentralized computing, and these token standards are one of the Ethereum development standards focusing on the token interface. These token standards are basically smart contracts allowing projects to issue tokens on the Ethereum network while ensuring compatibility and compatibility with existing decentralized exchanges.
With these token standards, Ethereum has made it possible for anyone to bypass all hurdles of creating a blockchain network or going through regulations of centralized exchanges. Now, let’s have a look at the types of Ethereum token standards.
Further Read: Understanding the Concept of Token
Types of Ethereum Token Standards
Majorly, there are two types of Ethereum token standards – ERC-20 & ERC-721. These token standards define and implement a set of common rules that all tokens must follow. These common rules include the total supply of tokens, how they can be transferred, transfer approvals, and data about tokens that users can access.
ERC-20 can be said to be the most famous token standard for Ethereum and across the blockchain networks. It’s a token standard for fungible tokens – fungibility is the property of any asset or token whose units are interchangeable among each other. For example, US dollar bills are fungible in nature as a $10 bill is worth the same as another $10 bill.
Most of the well-known projects such as MakerDAO, Compound, Aave, Brave, etc leverages the ERC-20 token standard for their digital currencies.
If ERC-20 can be called a class of identical tokens, then ERC-721 can be called a class of unique tokens. ERC-721 is a token standard for non-fungible tokens setting rules about building non-fungible or unique tokens on the Ethereum blockchain network.
Unlike ERC-20, the ERC-721 tokens are one-of-a-kind collectible digital assets. In essence, ERC-721 sets a standard for creating NFTs by introducing a unique tokenId for every token.
Learn more about the concept of NFTs and their real-world use-cases by following the link below.