Understanding Ethereum Token Standards
The Ethereum ecosystem thrives on standardized token protocols, with ERC20 and ERC721 being the most prominent. These standards define how tokens function within the blockchain, enabling developers to create interoperable digital assets.
What Is ERC20?
ERC20 stands for "Ethereum Request for Comment 20", a technical standard for fungible tokens on Ethereum. According to GitHub documentation:
"ERC-20 provides a ruleset that Ethereum tokens must implement, allowing developers to program how tokens operate within the ecosystem. Its simplicity and interoperability have made it the most adopted token standard."
Key Features of ERC20:
- Total Supply: Fixed or dynamic token quantity.
- Balance Tracking:
BalanceOfchecks address holdings. - Transfer Function: Moves tokens between addresses.
- Approval System: Allows third-party spending limits.
- Optional Attributes: Token name, symbol, and decimals (up to 18).
Over 10,000 projects use ERC20 due to its developer-friendly structure, making it ideal for cryptocurrencies and utility tokens.
What Is ERC721?
ERC721 introduced non-fungible tokens (NFTs), popularized by CryptoKitties in 2023. Unlike ERC20's interchangeable tokens, ERC721 tokens are unique, representing ownership of distinct digital or physical assets.
Core Differences:
| Feature | ERC20 | ERC721 |
|---|---|---|
| Fungibility | Fungible (1:1 interchangeable) | Non-fungible (unique) |
| Use Cases | Cryptocurrencies, utility tokens | Digital art, collectibles, real estate |
| Ownership | Tracks balances only | Tracks individual token IDs + metadata |
Technical Implementation
ERC20 Smart Contracts
- Stores balances and transfer logic.
- Simple architecture: Address → Token quantity.
ERC721 Smart Contracts
Requires three mandatory functions:
- Transfer: Triggers on ownership changes.
- Approval: Authorizes token transfers.
- ApprovalForAll: Manages operator permissions.
- Tracks unique token IDs and metadata (e.g., artwork details).
FAQ Section
1. Can ERC20 and ERC721 tokens coexist in one wallet?
Yes! Most Ethereum wallets (e.g., MetaMask) support both standards.
2. Which standard should I choose for my project?
- Use ERC20 for currencies or reward points.
- Choose ERC721 for unique assets like event tickets or digital collectibles.
3. Are ERC721 tokens more expensive to transact?
Often yes, due to complex metadata handling. Gas fees vary by network congestion.
4. How do NFTs gain value?
Scarcity, utility, and community demand drive NFT valuations.
👉 Learn about NFT investment strategies
Future of Token Standards
While ERC20 dominates DeFi and payments, ERC721 has unlocked digital ownership economies—from virtual real estate to intellectual property rights. Emerging hybrids like ERC1155 (semi-fungible tokens) may bridge these paradigms further.