ERC tokens are native to the Ethereum blockchain. Each token has a different use case. An ERC-20 is the standard token and allows for fungible and indistinctive tokens. That contrasts with an ERC-721 which is unique and non-fungible. The final ERC token, ERC-1155, combines fungible and non-fungible tokens in a single standard.
Describe a token.
In certain ways, tokens and cryptocurrencies are distinct. A cryptocurrency, like Bitcoin (BTC) and Ethereum (ETH), has its own blockchain. In contrast, tokens are assets created on an already-existing blockchain, such as DAI or UNI.
What are ERC Tokens?
A native of the Ethereum blockchain is an ERC token. The Ethereum Improvement Proposal that brought forth that standard is referenced by the number next to the coin.
Tokens now come in three different varieties: ERC-20, ERC-721, and ERC-1155.
ERC-20 tokens:
ERC-20 is the first kind of token. An ERC-20 token may be replaced by another one of its kind since it is fungible. Money operates in this manner. One wallet's $1 is the same as another's $1.
Each Ethereum token used to be unique until the ERC-20 token became the industry standard. That implied that bespoke code would have to be written to support them by wallets and exchanges. There has to be a global standard as a result.
Wallets and exchanges no longer need to create special code when a new token is issued.
Here are a few instances of ERC-20 tokens:
- Stablecoins (stables) are digital coins that are linked to physical assets like gold or fiat money like the US dollar.
- Owners of governance tokens have the ability to vote on suggestions to enhance the Dapp.
- These coins serve as the engine for the Decentralized Finance (DeFi) system.
The additional ERC specifications were developed for non-fungible coins (NFTs).
ERC-721 tokens:
ERC-721 tokens are distinctive and distinguished from ERC-20 tokens. Each ERC-721 coin is unique. This makes this token ideal for usage in collections, artwork, and other related applications.
The addition of unique identity is the primary distinction between an ERC-721 contract and an ERC-20 contract. Since every ERC-721 token must be unique, this offers a way to recognize the NFT. This number is provable on block explorers like Etherscan and cannot change at any time. A seat number for an event, identity, or the uniqueness of a work of art are a few examples.
ERC-1155 tokens:
An ERC-1155 token is the last kind. Fungible and non-fungible tokens are both supported by an ERC-1155 token. The industry that need this combination the most is blockchain gaming.
In video games, players may posses both fungible and non-fungible objects, such as rare items and in-game cash. Exchanges in the game become frictionless by establishing this norm.
Further resources:
ERC-20 Token Standard by The Ethereum Foundation
ERC-721 Token Standard by The Ethereum Foundation
ERC-1155 Token Standard by Enjin the creators of this standard
A note on bridges and layer-2 protocols by Patrick McCorry
credit: Argent
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