Token standards

Posted On September 10, 2024

Token standards are technical specifications that define the rules and behaviors for creating and managing tokens on a blockchain. These standards ensure compatibility and interoperability between tokens and other smart contracts or systems. In blockchain ecosystems, especially in Ethereum, various token standards have been developed to address different use cases. Here’s an overview of some of the key token standards in the Ethereum network:

1. ERC-20 (Ethereum Request for Comments 20)

• Purpose: The most widely used token standard on the Ethereum blockchain, designed for creating fungible tokens (tokens that are interchangeable with each other).
• Key Features:
  • Transferability: Tokens can be transferred between accounts.
  • Approval: Allows tokens to be approved for spending by a third party.
  • Events: Defines events such as Transfer and Approval to notify external systems of token movements and approvals.
• Example Tokens: USD Coin (USDC), Uniswap (UNI), and many other cryptocurrencies and tokens.

2. ERC-721

• Purpose: Standard for creating non-fungible tokens (NFTs), which are unique and not interchangeable with other tokens.
• Key Features:
  • Uniqueness: Each token has a unique identifier and can represent unique assets like digital art, collectibles, or real estate.
  • Metadata: Allows for additional metadata to be associated with each token.
  • Ownership: Tracks ownership and transfer of unique items.
• Example Tokens: Cryptokitties, Bored Ape Yacht Club, and other NFTs.

3. ERC-1155

• Purpose: Multi-token standard that allows for the creation of both fungible and non-fungible tokens within a single smart contract.
• Key Features:
  • Batch Operations: Supports batch transfers of multiple token types in a single transaction.
  • Efficiency: Reduces gas costs and improves efficiency by combining multiple token types into a single contract.
  • Flexibility: Useful for gaming and applications requiring a mix of token types.
• Example Tokens: Enjin Coin (ENJ), and tokens used in various blockchain-based games.

4. ERC-223

• Purpose: An improvement over ERC-20 to address certain issues, such as handling tokens sent to smart contracts.
• Key Features:
  • Safe Transfer: Adds a mechanism to prevent tokens from being accidentally sent to contracts that cannot handle them.
  • Event Handling: Introduces an additional TokenFallback function for safer transfers.
• Example Tokens: Not widely adopted but intended for projects needing enhanced safety in token transfers.

5. ERC-777

• Purpose: Advanced standard for fungible tokens with enhanced functionality and better integration with smart contracts.
• Key Features:
  • Advanced Features: Supports sending and receiving tokens with more flexible and advanced features.
  • Hooks: Allows contracts to react to token transfers and provide more control over token behavior.
  • Backward Compatibility: Compatible with ERC-20 tokens while offering improvements.
• Example Tokens: Not as widely adopted but designed to address limitations of ERC-20.

6. ERC-1400

• Purpose: Standard for security tokens that need to comply with regulations and represent ownership of assets like shares or bonds.
• Key Features:
  • Compliance: Supports regulatory compliance features such as transfer restrictions and issuer verification.
  • Partitioning: Allows for the partitioning of tokens into different classes or types.
  • Transparency: Ensures transparency and compliance with security regulations.
• Example Tokens: Security tokens representing financial assets or ownership stakes.

7. ERC-948

• Purpose: Standard for creating and managing tokenized assets with off-chain data or assets.
• Key Features:
  • Tokenization: Facilitates the representation of real-world assets on the blockchain.
  • Integration: Includes mechanisms for linking off-chain data with on-chain assets.
• Example Tokens: Tokens representing real estate or physical goods.

How Token Standards Work

1. Specification: Each standard defines a set of rules and functions that a token must implement. This includes methods for transferring tokens, checking balances, and approving spending.
2. Interoperability: By adhering to these standards, tokens and smart contracts can interact seamlessly with other applications and systems within the blockchain ecosystem.
3. Implementation: Developers use these standards as blueprints to create tokens and ensure they are compatible with wallets, exchanges, and other smart contracts.

Token standards are essential for the development and management of tokens on blockchain networks. They provide a framework for creating tokens that are interoperable, secure, and functional. Standards like ERC-20, ERC-721, and ERC-1155 address different needs, from fungible and non-fungible tokens to advanced functionalities and regulatory compliance. By following these standards, developers can ensure that their tokens integrate well with existing systems and contribute to a cohesive blockchain ecosystem.