In the past several years, non-fungible tokens have been more well-known because of tokens like Bored Apes Yacht Club, CryptoPunks, and numerous more. But what are these tokens exactly?
This post will discuss the fundamentals of tokens, fungible and non-fungible tokens, several token standards (ERC & EIP) that developers must adhere to, and much more.
What are ERC and EIP Standards?
The technical documentation known as ERC (Ethereum Request for Comment) specifies the standards and regulations for developing and deploying smart contracts on the Ethereum network.
Having said that, anyone can add or construct a new ERC, but it must first pass the EIP (Ethereum Improvement Proposal) voting and support process.
Under EIP, all Ethereum network users can view the improvement proposal and determine whether it enhances the functionality of the current ERC.
Your modification will be adopted and put into use so that everyone can benefit from the improved ERC standard as soon as the Ethereum developers and community believe it to be important.
Several of the ERC standards that are frequently utilized by every Ethereum Development Company are
ERC-20 Token Standard
The primary basis for creating fungible tokens on the Ethereum blockchain is the ERC-20 standard.
Each fungible token, or a portion of one, is worth the same as another. For instance, it is argued that a $10 bill that is fungible has the same value in person A’s pocket as it does in person B’s pocket. In essence, 10 ETH has the same value as another 10 ETH because all fiat currencies are fungible.
A custom token utility can be made using an ERC-20 token and deployed by anyone. It can be applied to voting rights distribution, rewarding network users, and other on-chain operations. The majority of popular tokens started out as ERC20. All ERC20 compatible tokens include utility tokens like BAT, governance tokens like MKR, and stable coins like USDT, USDC, and BUSD.
The six features that each ERC-20 token must support are as follows:
- TotalSupply(): The quantity of ERC-20 tokens in circulation
- BalanceOf(): The amount of tokens in a wallet or its balance
- Transfer(): Allows tokens to be transferred from the caller’s account to another account.
- TransferFrom(): Similar to transfer() but allowing smart contracts to move tokens for the owner
- Approve(): limits the amount of tokens that can be used by a user.
- Allowance(): The total amount of tokens that a user may invest on the owner’s behalf
The Token Name, Ticker Symbol, Decimals, and Divisibility optional functions can increase the usefulness of ERC20 tokens in addition to the aforementioned ones.
The aforementioned features serve as the building blocks for an ERC-20 contract, and by extension, for cryptocurrencies, stablecoins, utility tokens, and other digital assets with the Ethereum Development Services.
ERC-721 Token Standard
Non-fungible tokens, or NFTs, are created utilizing the token standard ERC-721 rather than ERC-20 on the Ethereum network.
NFTs are distinct cryptographic tokens that differ from any other tokens that resemble them in terms of value. This suggests that, like the Mona Lisa or other works of handcrafted art, NFTs have a unique value. The difference between fungible and non-fungible tokens is discussed more clearly with the Ethereum Application Development Services.
The core operations of the ERC-721 are
- BalanceOf(): The amount of tokens in a wallet or its balance
- OwnerOf(): Owners TokenID
- SafeTransferFrom(): Transfer tokens from the owner’s wallet to the recipient’s account.
- TransferFrom(): Comparable to transfer(), but generally not advised
- Approve(): Occasioned by approval occurrence
- SetApprovalForAll(): Permits calling SafeTransferFrom by the operator
- GetApproved(): obtains clearance for the particular tokenID
- IsApprovedForAll(): Determines if the operator is authorized to manage the owner’s assets.
Additionally, ERC-721 has features like Transfer, which activates when the NFT’s owner changes, and Approval, which activates when the approved address changes.
ERC721 has been used by Cryptokitties, Beeples ($69.3M worth of NFT), and Decentraland NFTS with top-notch Ethereum Consulting Services.
ERC-1155 Token (Multi-Token) Standard
In essence, ERC-1155 corrects two issues that were present in earlier editions of the token standard.
1. Enable batch transfers of many assets within a single smart contract.
2. Performs the usual functions for ERC-20 and ERC-721 tokens.
This means that ERC-1155 can transact an unlimited amount of tokens, as opposed to ERC-721, which requires a number of transactions. The latter would jam the network and cause a significant increase in gas costs.
ERC-1155 improves both of its predecessors’ capabilities while reducing gas costs and accelerating transactions, making it more efficient.
The following are the fundamental ERC1155 features and operations:
- BalanceOfBatch(): returns the remaining balance in a batch of IDs.
- SetApprovalForAll(): permits operators to move caller tokens
- IsApprovedForAll(): tests the operator’s ability to transfer caller tokens
- SafeTransferFrom(): exchanges tokens between the caller’s and the recipient’s addresses.
- SafeBatchTransferFrom(): SafeTransferFrom() operates similarly to the previous method but in batches.
Today’s blockchain games frequently employ this token standard. For their NFTs, Adidas originals likewise adhered to this criteria of Ethereum Blockchain Development.
Understanding The Use Cases Of ERC20, ERC721, Or ERC1155
With each new ERC standard, Ethereum seeks to make the process of creating new tokens simple, but it’s important to note that all of the current token standards are still useful today and for various industries’ unique user requirements. The specific use cases for ERC tokens are shown below.
- Use cases of ERC-20:
ERC-20 is helpful for organizing crowdfunding campaigns, ICOs, and the introduction of new cryptocurrencies into the market because it represents the value of fungible assets.
- Use cases of ERC-721:
Digital assets that are mostly employed as NFTs in the gaming sector, NFT marketplaces, and Metaverse platforms are represented by ERC-721 as belonging to a certain person.
- Use cases of ERC-1155:
Online gaming frequently makes use of the ERC1155 multi-utility token standard. Games now contain fungible native currencies to exchange values, fungible NFTs like gaming characters, and fungible elements like life/energy.
Conclusion
The first step after deciding to establish a smart contract is to choose the type of token that will serve your needs the best and then Hire Ethereum Developers. Depending on whether you want fungible or nonfungible tokens, you can either use ERC-20 or ERC-777, or you can utilize ERC-721 to construct a well-known NFT. You may always use ERC-1155 to create a hybrid contract if none of these appeal to you.
These token standards were all put out by brilliant people who wanted to make the lives of business owners and developers easier. We can acknowledge their ingenuity by maximizing the token standards.
