Token standards provide the framework for creation, issuance and deployment of new tokens on the blockchain network
A token standard is a set of rules, guidelines and functions that any new token that is created on the Ethereum Blockchain Network needs to follow. Token standards provide the framework for creation, issuance and deployment of new tokens on the blockchain network by users.
What exactly is ERC?
ERC stands for Ethereum Request for Comment. The ERC series of token standards has become the most common token standard series among all blockchain protocols.
Every time a specific set of standards or rules need to be made for a major innovation in the Ethereum blockchain ecosystem, an Ethereum Improvement Proposal (EIP) is initiated. This describes core protocol specifications, client Application Programming Interface (API) and contract standards that need to be standardised.
For example, some of the most important EIPs that resulted in ERCs are:
EIP no. 20 is associated with the ERC-20 that has resulted in the development of token standards that provide the standard APIs for tokens within smart contracts. This standard provides basic functionality to transfer tokens and their utilisation for performing transactions. It also allows third party to use the tokens for transfer of value.
EIP no. 721 is associated with the ERC-721 for development of Non-Fungible Token (NFT) standard. This provides the basic functionality to track and transfer NFTs across users, third party brokers, wallets, auctioneers, and other entities including other smart contract projects and services providers. NFTs should be distinguishable and unique with ownership tracking enabled.
What is the ERC-20 Token Standard and its Applications?
ERC20 is an official technical standard that provides a set of rules for tokens that are issued on the Ethereum blockchain network.
It was implemented on November 19, 2015. Cryptocurrency exchanges (such as Coinbase and Binance), blockchain-based NFT marketplaces (such as OpenSea and Rarible), blockchain wallets (such as MetaMask) and other service providers require a standard way to communicate to ensure seamless interoperability in the token’s functionality.
The ERC-20 token standards provides the core functionality for the tokens to be accepted across a wide range of smart contract projects and service providers.
What is the ERC-721 Non-Fungible Token Standard and its Applications?
BERC-721 token standard of Ethereum blockchain has become the most popular protocol for NFTs. ERC-1155 token standard of Ethereum blockchain is also used but it is not as popular as ERC-721. Crypto Punks was the first NFT on the Ethereum blockchain. Because Crypto Punks did not use the ERC-721 token standard initially, it became difficult to trade in the crypto markets.
But Crypto Kitties became a popular NFT after using the ERC-721 token standard and became the first major success for the Ethereum blockchain. Reason for popularity of the ERC-721 and ERC-1155 is because they are compatible with the NFT Ecosystem — i.e. wallets, cryptocurrency exchanges that have NFT marketplaces such as MetaMask, Rarible, OpenSea, etc.
The ERC-721 has gained on over two years of experience of enforcing the ERC-20 token standard. The ERC-20 token standard is not compatible for NFTs because it supports fungibility, whereas NFTs required to have unique ownership characteristic that cannot be replicated on the blockchain and hence effectively irreplaceable thereby giving it rarity value — this is what creates a demand and supply for NFTs.
ERC-4626 Standard :
This standard is a new offering — first proposed in January 2022 and finalized by March 2022. The ERC-4636 is a contract standard for yield bearing tokens issued by vaults and other protocols. This standard extends the ERC-20 standards and can be implemented as per requirement.
This standardizes yield bearing tokes, the way users deposit and withdraw to and from a vault, the interface to determine the underlying token. It has gathered adoption by DeFi players and is expected to encourage the faster growth of yield bearing instruments in the DeFI ecosystem.
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