ERC-20 and ERC-721 are technical standards or protocols that define how tokens are to be designed and implemented on the Ethereum blockchain. These standards provide a set of rules and functionalities that govern the creation, transfer, and management of digital assets on the network. While both ERC-20 and ERC-721 tokens are built on the Ethereum platform, they differ in their structure and purpose.
Overview
ERC-20:
ERC-20 is the most widely adopted token standard on the Ethereum platform. It was introduced by Ethereum developer Fabian Vogelsteller in 2015 as a way to establish a common set of rules for creating and interacting with digital tokens. ERC-20 tokens are fungible, meaning they are interchangeable with other tokens of the same type. They can represent various assets such as cryptocurrencies, utility tokens, or even real-world assets like gold or real estate.
ERC-20 tokens adhere to a specific set of functions and events that enable their interoperability with different wallets, exchanges, and smart contracts. These functions include methods to check an account’s balance, transfer tokens between accounts, and approve or disapprove the transfer of tokens by a third party.
ERC-721:
ERC-721, also known as the Non-Fungible Token (NFT) standard, was proposed by William Entriken, Dieter Shirley, Jacob Evans, and Nastassia Sachs in 2017. Unlike ERC-20 tokens, ERC-721 tokens are unique and non-interchangeable. Each token has a distinct value or characteristic, making them ideal for representing digital collectibles, digital art, virtual real estate, and other non-fungible assets.
ERC-721 tokens introduce additional functionalities that help uniquely identify and track individual tokens. They provide methods to transfer ownership, verify ownership, and retrieve detailed information about an asset. These features enable the creation of digital scarcity and allow the tokenization of assets that require precise uniqueness and provenance.
Advantages
ERC-20:
The ERC-20 standard has proven advantageous due to its widespread adoption and compatibility with various Ethereum wallets, exchanges, and smart contracts. Its fungible nature makes it suitable for representing currencies or assets that can be easily exchanged. The standardization ensures that ERC-20 tokens work seamlessly with different applications built on the Ethereum blockchain, promoting interoperability and ease of integration.
ERC-721:
ERC-721 introduces a new paradigm by enabling the tokenization of unique assets. This has opened up opportunities in the digital art, gaming, and collectibles industries, creating new value propositions for creators, collectors, and investors. The non-fungible nature of ERC-721 tokens allows for the representation and exchange of assets that require individual ownership and exclusivity, fostering a vibrant ecosystem for digital ownership rights.
Applications
ERC-20:
The ERC-20 standard has found extensive use in Initial Coin Offerings (ICOs), where it serves as the foundation for creating utility tokens that can be purchased and used within a specific blockchain ecosystem. It is also widely used for creating stablecoins, which are cryptocurrencies designed to maintain a stable value by being pegged to an external asset or algorithm.
ERC-721:
ERC-721 tokens have gained significant attention in the digital collectibles space, with projects like CryptoKitties and NBA Top Shot gaining popularity. These tokens allow for the creation of unique, verifiable, and tradable digital assets, revolutionizing the concept of ownership in the digital realm. Additionally, ERC-721 tokens can be leveraged for tokenizing real-world assets, enabling fractional ownership and enhanced liquidity.
Conclusion
In summary, ERC-20 and ERC-721 are two important token standards within the Ethereum blockchain ecosystem. While ERC-20 tokens provide fungible and interchangeable digital assets, ERC-721 tokens introduce the concept of non-fungible tokens with unique properties. Both standards have their advantages and applications, fueling innovation and creating opportunities across various industries. Their standardization and compatibility ensure seamless integration within the Ethereum network and beyond, empowering developers to build a decentralized future.