Ethereum Token Standards 

The Ethereum Requests for Comments shortly ERC, is a technical standard used for the development and implementation of smart contracts on the Ethereum blockchain. ERC standards define a set of rules and guidelines that enable the creation and interoperability of tokens within the Ethereum ecosystem. But before that, we will see why we need such tokens.

Why Do We Need Tokens and Cryptocurrencies in the Blockchain Ecosystem?

Cryptocurrencies or coins are the base for all the transactions within a blockchain platform, a blockchain can only have one valid coin, for Ethereum it is the ETH coin. But there can be many tokens that can be built on a blockchain platform. For example, Basic Attention Token (BAT), Bancor (BNT), OmiseGO (OMG) and others are tokens built on top of the Ethereum blockchain. That’s how coins are different from tokens.   

What are Token Standards?

Tokens are digital assets developed using smart contracts for a particular blockchain. Each developer can develop their own set of tokens based on the smart contract rules. There are 5 major types of token standards. They are,

• Reward tokens
• Currency tokens
• Utility tokens
• Security tokens
• Asset tokens

Since there is no regulation in creating tokens, everyone creates their tokens with their set of rules which may be incompatible with others or non-interoperable thus putting a dent in the scalability of the blockchain ecosystem. This is where the token standards come into play. 

In order to build, issue, and deploy tokens on blockchains that enable smart contracts, developers must abide by a set of rules, specifications, and requirements called token standards.

What is Ethereum Token Standard?

The Ethereum Requests for Comments shortly ERC, is a technical standard used for the development and implementation of smart contracts on the Ethereum blockchain. ERC standards define a set of rules and guidelines that enable the creation and interoperability of tokens within the Ethereum ecosystem. But before that, we will see why we need such tokens.

• ERC 20

ERC-20 is the most widely adopted token standard on the Ethereum blockchain. It defines a set of functions and events that allow for the creation of fungible tokens. Fungible tokens are interchangeable (for example, 1 USD coin will be always equal to another 1 USD coin, which is interchangeable) and have identical values. ERC-20 tokens are used in a wide range of applications, including ICOs (Initial Coin Offerings), tokenized assets, and utility tokens. Examples of ERC-20 tokens include Ethereum (ETH), Binance Coin (BNB), and Chainlink (LINK).

• ERC 721

Unlike ERC-20 tokens, ERC-721 tokens are non-fungible tokens (NFTs), which means each token has a unique identity and value  (cannot be interchanged all the NFTs are unique and has a different value). ERC-721 standardizes the implementation of NFTs on the Ethereum blockchain, enabling the creation of tokens that represent ownership of distinct digital or physical assets. These assets can include collectibles, digital art, virtual real estate, or unique items in video games. Popular examples of ERC-721 tokens are CryptoKitties and Decentraland’s LAND tokens.

• ERC 777

ERC-777 is an extension of the ERC-20 standard with additional functionalities. It enhances the token standard by introducing advanced features such as improved security, better handling of token transactions, and hooks for token behavior customization. ERC-777 tokens are backward-compatible with ERC-20, meaning they can be used in ERC-20 token contracts without issues. This standard is designed to provide more flexibility and efficiency for token transfers and interactions.

• ERC1155

ERC-1155 is a multi-token standard that combines the features of both ERC-20 and ERC-721. It enables the creation of both fungible and non-fungible tokens within a single smart contract. ERC-1155 provides more efficiency in terms of gas costs and allows developers to manage multiple token types in a single contract, reducing complexity and enhancing scalability. This standard is particularly useful for applications that require both fungible and non-fungible tokens, such as gaming platforms and decentralized exchanges.

EIP vs ERC

It’s worth noting that ERC standards are not limited to these four examples. The Ethereum ecosystem has seen the development of several other token standards, each serving different purposes and catering to specific use cases. Whenever a need arises for a need of a different ERC standard token, an EIP token is created.

Ethereum Improvement Proposal is known as EIP. Anyone can propose, write, edit codes, and submit for updates or upgrades in the existing feature and functionality. An EIP is a design paper outlining a new feature for Ethereum or its environments, processes, or environments and offering information to the Ethereum community. This EIP is written based on the guidelines which are set under the EIP-1, released in 2015. The EIP that gets approved and consensus finally becomes an official standard.

One such example is the ERC – 3643 token, which was formerly known as the T-Rex token.

ERC 3643 Token Standard

Security and compliance are the major goals for the ERC-3643 standard. Simply, it means the ERC 20 tokens can be sent or received from anyone, whereas ERC-3643, which is particularly helpful for providing tokenized securities, focuses on sending tokens to verified and authorized beneficiaries in a controlled offering. Additionally, it contains a set of rules that allocate a portion of the tokens for voting and dividends tied to share ownership. ERC-3643 includes a variety of compliance-focused features because it is designed for tokenized securities. It has controls for blacklisting and whitelisting wallet addresses as well as limiting token transfers in accordance with compliance regulations. ERC-3643 also makes it possible to track changes in token ownership and identify token holders in order to abide by Know Your Customer (KYC) and Anti Money Laundering (AML) laws. 

Get in touch with the blockchain consultants at BSEtec, to know which token is suitable for your next project.

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