Ethereum is a technology that's home to digital money, global payments, and applications. 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 Blockchain, 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. So there must some standard that should back such powerful features of tokens on blockchain. That's why Application-level standards and conventions, including contract standards such as token standards (ERC-20) and many more developed Link.
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 request for comment. An ERC20 token is a standard used for creating and issuing smart contracts on the Ethereum blockchain. Smart contracts can then be used to create smart property or tokenized assets that people can invest in.
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.
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:
ERC token standard start from ERC-20 to ERC-4987, the evolution of the ERC tokens has been a great effort to keep Ethereum’s momentum high and make it a more mainstream. Let’s focus 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 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.
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.
ERC-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(NFT)
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 specially for artists.
On Ethereum, a token representing a one kind of digital asset must comply with the ERC-721 token standard. Some known NFT- Cryptokitties, Bored APE, was built on the Ethereum blockchain.
For understanding the role of ERC-721, check 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.
- Real estate property.
- Social media content Tweets, Videos 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.
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 Token Standard
A standard interface for contracts that manage multiple token types. A single deployed contract may include any combination of fungible tokens, non-fungible tokens or other configurations (e.g. semi-fungible tokens).
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:
- Tokens.
- NFTs.
- Redeemable shopping vouchers etc.
Conclusion
ERC-20, ERC-721, and ERC-1155 are currently the prevalent token standards. Likewise, the new and improved token standards will help enterprises launch more successful projects.
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