What are Token Standards? ERC-20, ERC-721 and ERC-777 Explained
- Token standards direct the functioning of Smart Contracts.
- Different tokens are used for different functions.
Token standards are rules and guidelines that determine the functioning of different types of tokens. Different types of token standards are used for different types of functions. For example, the most common token standard used for the token of a decentralised application built on the Ethereum blockchain is the ERC-20 token.
Whereas for making NFTs ERC-721 token standards are used. These are the tokens that are most commonly used in the Decentralised ecosystem. Other than this, There are other tokens also available, like ERC-777 and ERC-1155.
What are Token Standards?
Token standards are a set of rules, conditions, and functions that determine the guidelines for the working of crypto tokens. All the tokens work with the help of smart contracts, so to understand the token standards, one must know what smart contracts are and how they function.
So smart contracts are basically working on conditions of if and then. And smart contracts must follow the rules of the token standards because they are responsible for the functioning of the application running on them. It means that all smart contracts must comply with the rules of the token standard.
This must have given you an idea of what token standards are and how they function. Let’s now Understand in detail the different token standards that run on the Ethereum platform.
Common Token Standards on Ethereum
ERC Tokens: ERC stands for Ethereum Request for Comment, which is nothing but a collection of documents that contain various rules and guidelines that will be deployed on smart contracts. That being said, let’s now understand different token standards.
ERC-20 Token standards:
This standard was launched in 2015. It provided basic functionality to transfer the tokens. As well as allowing the tokens to be approved.
The tokens created with the help of these token standards are fungible, which means that these tokens are almost the same and can be easily transferred. They are just like fiat currency. The various decentralised organisations use them to raise funds for the developing team working to build the project. Every Dapp built on the Ethereum blockchain has its own token. For example, the token of Decentraland is called the MANA token, and the token of Uniswap is called UNI.
ERC-721 Token Standard
This token standard is specially built for the Non-fungible tokens for the NFTs. This token provides every NFT with its own unique identity. It is very different from the ERC-20 tokens because one token cannot be exchanged for another Because every unit is unique.
ERC – 777 Token standard
This token was introduced by the Ethereum ecosystem to overcome the limitations of the ERC-20 tokens. This token is very efficient for sending and receiving money because it utilises a mechanism known as ‘Hooks”. Another cool feature of the ERC-777 token is that it is truly compatible with the ERC-20 token. This means that any token built on the ERC-20 tokens can easily interact with the tokens built on the ERC -777 standards.
ERC – 1155 Token Standard
It is a multi-token standard that has the quality of most of the other tokens. In short, it is a hybrid token because it allows the creation of fungible, non-fungible, and even semi-fungible tokens. In short, it is an all-in-one token.
Token standards are essential sets of rules that govern the functioning of different types of tokens in the blockchain ecosystem. ERC-20, ERC-721, ERC-777, and ERC-1155 are some common token standards used on the Ethereum platform. These standards ensure seamless interoperability and diverse functionalities for various types of tokens, contributing to the growth and innovation in the decentralised space.