Learning Lab: Ethereum Token Standards
Token creation is paved with a set of guidelines known as token standards. To date, the Ethereum Network remains the primary blockchain for creating new tokens. Let’s have a look at the most common Ethereum token standards.
What are Token Standards?
The set of guidelines, requirements, and operations known as token standards specifies how a token operates. Interestingly, token standards are a subset of smart contracts standards.
Simply put, smart contracts are blockchain-based algorithms that self-execute when certain criteria are met. They are often used to automate the implementation of an agreement. This allows all parties to be certain of its timely and fair execution, which removes the need for an intermediary. Similarly, smart contracts help automate a workflow (i.e., when certain conditions are met, a specific action is executed, etc.).
Most Popular Token Standards on Ethereum
As Ethereum is the platform of choice for most blockchain smart contracts, the most popular token standards are ERC-20, ERC-721, ERC-777, ERC-1155, and ERC-4626.
“ERC” stands for Ethereum Request for Comment – a set of technical documents containing guidelines on developing a smart contract. In fact, anyone can build an ERC-token, given that the developer completes an Ethereum Improvement Proposal (EIP) – a document that outlines the features and procedures suggested for the Ethereum Network. The initial document becomes an ERC standard once this procedure is finished, allowing other developers to utilize it for making their own tokens.
ERC-20 is the most popular standard interface for fungible – or interchangeable – tokens, such as voting and staking tokens, virtual currencies, etc.
A standard interface for non-fungible tokens (NFTs), unique in their singularity. Each NFT contains a one-of-a-kind, non-transferable identity to distinguish it from all other tokens.
A mixer contract for more transaction privacy or an emergency recovery feature to help if you misplace your private keys are just two examples of the additional functionality that can be added to tokens using ERC-777.
ERC-1155 allows for more efficient trades and bundling of transactions, saving costs as a result. This token standard is used to build (social) utility tokens and NFTs.
A tokenized vault standard called ERC-4626 was created to improve and harmonize the technical specifications of yield-bearing vaults.
The Future Is Tokenized
New tokens are created using a variety of standards on the Ethereum blockchain. Depending on the unique application and utility, each has its own standard protocol and specifications. The number of token standards will continue to increase, with future standards modified to match the specific real-world value as blockchain applications continue to go way beyond traditional use cases.
If you want to learn more about how crypto works, feel free to dive into our Learning Lab. Join the conversation on our Discord and Telegram channels to chat with like-minded people and discover what is happening in the crypto landscape every day!
When you feel confident, Sign-Up for a Coinmetro account to put your knowledge to work.
Are you a registered user? Feel free to Log In to your account now to discover a premium trading and investing ecosystem.