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Explain main standards for Ethereum ERC20 tokens?

Ethereum introduced the concept of decentralized applications and blockchain-based protocols.

By RagunathPublished 5 months ago 6 min read
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Introduction

Although Ethereum has its own “coin” called ETH, which can be used in the same way as BTC, its main purpose is to serve as gas to power transactions and operations in applications and protocols built on top of the network. Developers of these applications can create in-app currencies or digital assets that are stored on the Ethereum blockchain. These are what we call tokens, and they must adhere to certain “rules” called ERC20 token development standards.

Explain main standards for Ethereum ERC20 tokens?

Token standards are a set of rules that allow the development of cryptocurrency tokens on various blockchain protocols. These standards provide guidelines for the creation, issuance and adoption of new tokens on the main blockchain. These norms are known as ERC (Ethereum Request for Comments) in the context of Ethereum, and they provide the guidelines for the tokens that can be generated on that platform.

Each ERC token is identified by a serial number, which corresponds to the number of the “request for comments” in which these standards were proposed. In addition to the three ERC standards that are most widely used in Ethereum, there is another new, very interesting standard:

1.ERC-20: First introduced in 2015, ERC-20 is a token standard that allows developers to create fungible tokens for their Ethereum-based applications or protocols. ‘Decomposable’ means divisible and non-unique. For example, fiat currencies such as the dollar are fungible, as is BTC (1 BTC is worth 1 BTC, no matter where it is issued).

ERC-20 tokens are most often developed by technology-focused organizations or companies. Tokens created using ERC-20 are compatible with each other and with compatible services throughout the Ethereum ecosystem. All of this makes it easier for community members and businesses to adopt and use them in a wide range of applications, as anyone can create their own token Any digital item without having to start from scratch with programming.

It is important to emphasize that while ERC-20 tokens can be easily transferred to many applications, they are not stored in accounts. Tokens only exist within a contract, which is like an autonomous database. Thus, users need a wallet running on the Ethereum blockchain to “see” their balance of ERC-20 tokens;

2.ERC-721: Unlike ERC-20s, ERC-721 is a token standard that allows developers to create non-functional tokens (NFTs) — “non-functional” means that each token has a unique value and acts as verifiable unique digital objects. which cannot be exchanged with each other like ERC20 tokens.

ERC-721 tokens are often used to represent ownership on the blockchain for many items, such as contracts for physical assets, digital collectibles, and digital art. In addition, they cannot be exchanged for others due to their unique characteristics. In a nutshell, the ERC-721 standard was created to address the need to provide uniqueness to the tokens of the Ethereum ecosystem.

3.ERC-1155: Combining the best aspects of the first two standards listed above, ERC-1155 is a token standard that allows developers to create both fungible and non-fungible tokens, and also introduces the innovation of the ability to create semi-fungible tokens.

ERC-1155 tokens are used primarily for NFT game development, as a single contract can be created to support multiple types of customizable tokens. This type of contract greatly reduces the complexity of the token creation process, since playing an NFT would require a large amount of assets circulating in the system (which could be objects collected by players).

4.ERC-4907: Defined as a standard for leased non-playable tokens, ERC-4907 takes NFT ownership to a more advanced level by being the first to automatically revoke usage rights upon expiration. Under ERC-4907, the lessee can perform certain operations on the leased asset, but cannot transfer the asset to a third party or assume full control. This is an important innovation because it can improve the experience for both the NFT owner and the lessee by giving the NFT itself more flexibility.

What is the process for creating ERC standards?

The Ethereum ecosystem is on the path to decentralization, but it still needs a core of developers who set the rules, call for updates, and set standards. However, before doing this, you must go through the Ethereum Improvement Proposal (EIP), which is a document that includes proposed features and processes for the Ethereum blockchain network. Once a proposal is submitted, it is discussed and put to a vote to either reject it or move forward with its implementation. Once this process is approved and completed, the original document becomes an ERC standard that other developers can use to create their own tokens.

For each type of ERC token, there are precise core features that must be implemented, which vary depending on the purpose for which they were created. Taking ERC20 token generator as an example, the functions would be as follows:

TotalSupply: provides information on the total supply of tokens;

BalanceOf: provides the owner’s account balance;

Transfer: sends the predetermined tokens to the predetermined address;

TransferFrom: transfers the specified number of tokens from the specified address;

Approve: Allows the spender to withdraw a set number of tokens from the specified account;

Resolution: Returns a set number of tokens from the spender to the owner.

The above features are required. In addition, there are other optional ones that are used to define the characteristics of the new token, such as giving it a human-readable name, setting a symbol, and indicating the divisibility of the token.

Use Cases & Real Applications

Since their initial introduction, ERC tokens have been used for a variety of purposes and have contributed to the growth of various use cases and applications. Below are some use cases by token type.

Stablecoins: These fiat-pegged tokens often use the ERC-20 token standard. Since this standard has become popular, it has generated significant network effects. Cryptocurrency users can rest assured that any stablecoin created using the ERC-20 standard will interoperate with hundreds of other ERC-20 tokens and those services that already accept ERC-20 tokens. Today, most Dapps (decentralized applications) accept ERC-20 stablecoins, as well as all centralized services such as crypto exchanges.

Utility Tokens: These tokens are the most common types of tokens in the cryptocurrency market. They are used to obtain a specific service and satisfy various usage conditions, such as being gas for various applications, giving voting rights to service users, or being used to pay fees in a DApp. Today, the majority of tokens in circulation are or were ERC-20 (there are cases where some tokens subsequently moved to another blockchain).

CryptoPunks: Crypto art collectibles presented as NFTs on the Ethereum blockchain. At the beginning of its release, CryptoPunks were tied to the ERC-20 standard, which was not suitable for making the token completely unique. For this reason, the team ended up modifying the ERC20 development code enough to release non-volatile items, which inspired the development of ERC-721 soon after. Therefore, it can be said that CryptoPunks technically predates the standard Ethereum ERC-721 NFT token.

NFTs online gaming: As the gaming industry evolves, ERC-1155 tokens are becoming a tool with enormous potential as they have demonstrated a higher degree of interoperability than their predecessors. A video game that contains a huge number of collectibles and tradable items on its platform cannot rely on anything other than the ERC-1155 standard to run smoothly. Since a single smart contract can store multiple items, both removable and non-replaceable, any number of items can be sent in a single transaction to one or more recipients. Therefore, in terms of scalability, ERC-1155 tokens represent a considerable advancement.

Conclusion

The entire Ethereum ecosystem has once again demonstrated that it is capable of developing ever more efficient solutions to create an entirely new user-driven economy on the Internet. Since the ERC standards were first introduced, we have seen developers and users come up with even more advanced and specific standards that are suitable for every branch of the crypto industry.

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About the Creator

Ragunath

Safe and Secure Blockchain Technology Service Provider

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