Last updated: 9th Dec 2022
Table of Contents:
WHAT ARE ERCs?
WHAT ARE ERC TOKENS?
FUNGIBLE AND NON-FUNGIBLE TOKENS
ERC TOKEN STANDARDS
In the blockchain world, Ethereum is the primary framework for all web3 development. The crypto world is consumed by two main types of blockchain digital assets – tokens and coins. The number of digital assets that the Ethereum network covers is known as the Ethereum token. These tokens denote the units of value developed upon a pre-existing blockchain network. The development of ERC tokens has proven to be the most standard of all, as the token is the standard framework for programming how a token launched on Ethereum will act upon it. With this, many Ethereum communities are go-getting to improve on the existing and laid-out standards by putting into operation useful new features for new case uses. In this article, the ERCs token standards will be explored alongside their use cases.
ERCs stands for Ethereum Request for Comments. These are technical documents that consist of information about protocols/platform specifications, and smart contracts, which include token standards, name registries, library/package formats, and more. With ERC, anyone can set it up but the main obligation is left to the author to explain their standard and ensure support for it within the community. Basically, the token standards are used by smart contract developers to implement tokens in the world of Ethereum.
Technically speaking, a token is just another word for cryptocurrency. A token entails a set of rules encoded in a smart contract. It can be said to be a digital asset that is safely stored and secured on the blockchain. In the blockchain space, every token belongs to a specific blockchain address. ERC tokens, therefore, are unique and peculiar to Ethereum’s blockchain. Simply, whenever a new application on the blockchain is developed on the Ethereum blockchain, a new token is created. Just as stated above, anyone can build up ERC tokens, but the developer must state its utilities and have them accepted by the community. ERC token standardization acceptance is determined by the community via the Ethereum Improvement Proposal (EIP).
On the Ethereum network, a token can virtually represent anything, such as reputation points in an online platform; skills of a character in a game; lottery tickets; financial assets like a share in a company; a fiat currency like USD; an ounce of gold and a lot more.
In the world of blockchain, tokens are essential. They can be said to be the king in the blockchain space. Tokens can serve different roles. Tokens are non-restricted and not limited. With a token in hand, it can serve as the gateway to decentralized apps, and also a specific token holder can have the right/access to vote. This then leads us to the types of tokens we have with their use cases and attributes. We have Fungible and non-fungible tokens.
Briefly, fungible tokens are divisible and non-unique. Also, fungible tokens are interchangeable and equal. This means that all fungible tokens have the same value for each unit. For example, fiat currencies are fungible. A $20 note is interchangeable with any other $20 note. The same is applicable to Ether. One ETH value can be exchanged for another ETH value. Examples of fungible token standards in the Ethereum space are ERC-20, ERC-223, ERC-777, ERC-827, ERC-664, etc.
On the other hand, non-fungible tokens are non-divisible and unique - they have different values. NFTs can be considered the perfect example of non-fungible tokens. They include ERC-721, ERC-875, and ERC-998.
The major difference between these types of tokens lies in what they store. Fungible tokens store value, while non-fungible tokens store data like artwork. More of their differences can be explored in the image below.
Many blockchain projects have opted to build on an existing blockchain design rather than creating a brand new blockchain template from scratch. Arguably, the significant majority of tokens in existence in the blockchain flora and fauna are built on Ethereum. ERC-20 is by far the most standard user interface and the most popular token used to create fungible tokens. With this, developers are enabled to build on this to create new tokens that can interoperate within the Ethereum network of decentralized applications. Even with its wide usage and popularity, many ERC token standards are rising in popularity and their use cases. In this, however, other less-known ERC tokens will be explored.
This is the most popular token type. This token standard was proposed by Fabian Vogelsteller in November 2015. Going through the procedures of the Ethereum developer community, the standard was approved and implemented in 2017. The token is built as the standard API for fungible tokens within the smart contract. This standard allows tokens (in this regard, tokens represent an asset, right, ownership, access, or cryptocurrency that can be transferred) to be traded for a token that represents another. The ERC-20 standard token consists of several functionalities that ensure that the Ethereum token of diverse types in any place will uniformly function within the Ethereum ecosystem.
BalanceOf(): this function depicts the balance of the token owner’s account.
TotalSupply(): this function gets the total supply of the token available on the network
Transfer(): this function enables the owner to send a specified amount of the token to a recipient wallet address.
TransferFrom(): This allows a smart contract to automatically transfer a specified amount of token on behalf of the owner.
Approve(): this function approves the transfer of tokens from the owner’s address to the recipient’s address
Allowance(): This ensures the owner has up to the stated amount of tokens in the approve function. It regulates transaction validation before they get added to the blockchain.
As of 2020, there are 829 projects based on the ERC-20 token standard and over 350,000 token contracts, according to a list from Ethereum data provider - Etherscan. Surprisingly, there are quite a several top crypto projects that have built on the ERC-20 framework, they include: Tether (USDT), Chainlink (LINK), Binance coin (BNB), USD coin (USDC), Wrapped Bitcoin (WBTC) and Dai (DAI).
Many token holders have lost tokens due to mistakes during transactions. ERC-223 is then created to prevent the accidental permanent loss of tokens due to mistakes during transactions from one wallet to another. For example, if an ERC-20 token is sent to an ERC-721, this token is lost forever because of the incompatibility (failure of the receiving contract to recognize the sending contract). ERC-223 is a proposed framework that recognizes incoming tokens and returns the token if the recipient is an incompatible smart contract through the functionality of token recovery. However, as of 2021, ERC-223 has not been implemented and even has its status as a draft removed.
This is a token standard on Ethereum for Non-Fungible tokens (NFTs). The initial ERC-721 specification was proposed by Dieter Shirley as an Ethereum Improvement Proposal (EIP), which is a procedure for orienting and introducing new standards to Ethereum. ERC-721 was Ethereum’s first NFT token standard. It laid the groundwork and fundamentals for the growths
and use cases of NFTs that are now common in the space. It provides the functionality of tracking and transferring NFTs. Today, the most used case of ERC-721 is for digital arts. But it is beyond that! It also allows the transaction of physical property (houses, artwork, and vehicles), virtual collectibles (Crypto Kitties, collectible cards), assets with negative value (loans), etc.
Just like the aforementioned ERC token, it provides functionalities like transferring tokens from one account to another, getting the current token balance of an account, getting the owner of a specific token, and also calculating the total supply of the token available on the network. Apart from these, it also has some other functionalities like approving that an amount of tokens from an account can be moved by a third-party account.
Today, the most used case of the ERC-721 NFT is for digital art. Users use this token for a number of reasons. In real life, users have the ability to mint the deed for their house property as NFT and make real estate operations more effective.
This token system, in relation to ERC-223, is known for its advanced features and improvements on the ERC-20 tokenization standard platform. To start with, the feature to send a token on behalf of another address through the construction of new taxonomy addresses called operator speaks a lot about the ERC-777 token system. Theoretically, every Ethereum wallet is responsible for its own transactions, the movement of its tokens. This feature of ERC-777 also allows token holders to allow and revoke permissions from a particular operator that might want to send and receive tokens on their behalf. Interestingly, it also has the feature to send and receive hooks that allow smart contracts and operators to be aware of incoming transactions and be in control or reject the token they want to send or receive.
This is a proposed token standard passed to the EIP in 2018. It is designed to accommodate recurring subscription models, such as a monthly subscription to gain access to particular content or many others on a blockchain-based network. Monthly subscription models are widely used by traditional providers of Internet-based services, such as cloud-based storage, editorial content, etc. The token standard is then structured to bring this same feature to the blockchain and decentralized services on the blockchain. This token system focused on allowing Ethereum wallets to sign recurring payment smart contracts and also provide an accessible user interface for managing subscriptions on the blockchain. Without doubts, ERC-1337's potential to usher in a subscription economy on the blockchain is a bright prospect, even though it might still undergo some changes after its draft stage in 2021.
This is a very powerful token standard in the sense that it is a multi-token standard. That is, it allows the smart contracts to manage any value of fungible and non-fungible token types. Any other token, like ERC-20, ERC-721, manages its own smart contracts fully. With ERC-1155, the framework is designed to allow any number and type of token to be supported and managed by a sole smart contract, which reduces the computational operating cost for decentralized applications. It also allows the transfer of multiple types of tokens in a single transaction; thereby mitigating transaction costs and boosting transaction speed and efficiency along the way.
Few others include:
ERC-981: This is a partial ownership token standard. It allows users to trade a finite amount of their assets. A user with this token can decide to divide the asset into units that expand the its fungibility
ERC-994: It is an entrusted NFT standard of NFTs that is arranged in a format similar to DNS. NFTs can be delegated and sub-contracted within specific geospace.
ERC-995: This standard provides an extended token transfer functionality. It allows the execution of calls on transfers and approvals, before and after tokens are transferred.
ERC-998: This is a composable NFT standard: an extension for NFTs to own other ERC-20 or ERC-721 tokens.
ERC-1067: This is an upgradable token contract standard that tolerates new functions to be executed after the token contract has been deployed.
With all that explored, it is no doubt that ERC-20 is still the most used token as it has the narrowest shell for any probable attack and its diverse functionalities have helped in the growth and development of the Ethereum blockchain network.
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