ERC-20, ERC-721, ERC-777, ERC-1155–all these names may sound weird for those new to the blockchain world. Worry not. This post will help you understand these terms’ meaning and their practical use.
Standing for “Ethereum Request for Comment,” the ERC Token Standard is just another name for Smart Contract Standards. According to Ethereum, “Many Ethereum development standards focus on token interfaces. These standards help ensure smart contracts remain composable, so for instance when a new project issues a token, that it remains compatible with existing decentralized exchanges.”
The smart contracts on Ethereum usually contain certain attributes and obey specific rules. These attributes and rules ensure the function of the smart contract as intended on the underlying blockchain network. The ERC or the smart contract standards enable multiple blockchains and NFT use cases, contributing to the network’s growth.
According to Ethereum, “Tokens can represent virtually anything in Ethereum:
Although Ethereum continues to introduce different ERC token standards, the most common ones are ERC-20, ERC-721, ERC-777, and ERC-1155. Let’s take them one by one.
The ERC-20 is the technical standard for fungible tokens. Fungibility stands for interchangeable goods. Created in 2015 by the Ethereum community and officially recognized in 2017, ERC-20 enables token exchanges. The ERC-20 standard includes functions such:
According to Ethereum, “ERC-20 Token acts just like the ETH, meaning that 1 Token is and will always be equal to all the other Tokens.”
In her book “Token Economy: How the Web3 reinvents the Internet” Shermin Voshmgir highlights the following:
“NFTs started to attract a lot of attention when the ERC-721 token standard was introduced, especially following the success of “Crypto Kitties,” a game on the Ethereum network where players can collect and breed digital cats, and where each cat’s unique digital “genetic code” is stored on Ethereum’s ledger.”
Compared to ERC-20 tokens, the technical standard for fungible tokens created using the Ethereum blockchain, ERC-721 tokens allow for detailed attributes. In other words, by using the ERC-721 token standard, more blockchain projects joined the development of NFT standards.
As a result, according to Shermin Voshmgir, the list of NFT standard categories contain:
► Crypto-collectibles, which enable the tokenization of unique goods, including virtual collectibles or collectibles in the real world.
► Asset tokens, which allow unique investments tied to a physical object, such as real estate, unique artwork, and securities.
► Identity tokens, certificates, and reputation, tied to any type of ID or certificates, such as transcripts, diplomas, university degrees, software licenses, and more.
► Access tokens that help manage any type of access right tied to a specific person, property, or event.
► Transfer tokens, which involve the splitting of goods between multiple people when someone passes away.
As Shermin Voshmgir notes:
“While fractional ownership is possible today, transfer tokens managed by a distributed ledger would make the transfer of assets in the case of wills much more frictionless.”
ERC-777 is a tradable token standard for fungible tokens introduced on the Ethereum network, which is fully compatible with existing decentralized exchanges. As Ethereum explains, “ERC-777 is a fungible token standard improving the existing ERC-20 standard.”
According to Ethereum, “Hooks are a function described in the code of a smart contract. Hooks get called when tokens are sent or received through the contract. This allows a smart contract to react to incoming or outgoing tokens.”
The ERC-1155 works for fungible and non-fungible tokens, ensuring their transfer in a single transaction. ERC-1155 was initially created to solve blockchain game developers’ and players’ challenges.
As Decrypt notes, “Massively multiplayer online games (MMOs) contain tens of thousands of items—armor, weapons, shields, skins, coins, badges, castles, etc.—that players can collect and trade with one another. Some items like coins are fungible while others like a sword are non-fungible. On the blockchain, each one of these items is a token.”
Before ERC-1155, one needed a smart contract for each item. According to Decrypt, “In a game with 100,000 items that means 100,000 smart contracts!”
On the other hand, the ERC-1155 token allows multiple items to be stored in a single smart contract. As Decrypt highlights, “This means if you wanted to send a sword to one friend, a shield to another, and 100 gold coins to both, you could do so in only one transaction.”
Other ERC token standards: