Understanding Token Standards on Ethereum and EVM chains

Token standards play an important role in the blockchain ecosystem, mostly in EVM chains and Ethereum, which can’t be undermined. The token standards explain how tokens behave and communicate within the blockchain ecosystem, thus ensuring security, uniformity, and compatibility across wallets, platforms, and decentralized applications.

• Security: Token standards reduce risk related to management and creation by defining security measures and standardized functionalities. They offer users and developers a trusted framework, improving blockchain-based transaction confidence.
• Innovation: Token standards enable the development of various token types focusing on a certain use case, thus facilitating innovation. From non-fungible tokens (NFTs) for digital collectibles to fungible tokens mostly applied in decentralized finance (DeFi), these types of token standards unlock new digital assets and economic model classes.
• Interoperability: Some token standards, like the Ethereum Request Comment 20 (ERC-20), make sure that tokens can interact smoothly with other tokens and dApps (decentralized applications) on the same blockchain ecosystem. With this interoperability, it fosters efficiency and liquidity in token exchanges.
• Compatibility: Applications developed using token standards can be connected to different blockchain wallets, services, and exchanges, thus improving accessibility and usability for developers and users alike.
• Easy Development: With standard tokens already in place, developers do not need to build new wheels. They can create new ones on top of the existing standards, making them easy to build.

ERC (Ethereum Request for Comment) is a set of documents that provides guidelines for developing a smart contract. The ERC defines a set of functions used for each type of token and facilitates the interaction between smart contracts and applications.

It’s easy to create an ERC token. However, one needs to thoroughly go through an Ethereum Improvement Proposal (EIP) process. An EIP is a document that contains all the features and guides for the Ethereum blockchain network.

After developers share their proposals, Ethereum core developers assess and scrutinize them. If it seems like a perfect fit for the addition to the blockchain ecosystem, they accept it, finalize it, and implement it. Once the process is done, it becomes an ERC standard that any other developer can use to develop their tokens. Here are some of the major token standards on Ethereum and EVM chains;

ERC-20 Token Standard

The ERC-20 token standard was created back in 2015 as a fungible token standard that offers basic functionalities and covers various types of cryptocurrencies, such as security tokens, stablecoins, and utility coins. The token is mostly used to develop project governance and utility tokens for decentralized applications operating in the side chains or Ethereum blockchain.

One of the most adopted token standards, the ERC-20, offers information on the 6 most important functions plus the three optional functions that any given token must apply in order to be compliant.

The six main functions define the wallet balance, total supply, token transfer on behalf of the user, ownership transfer, and approval of the maximum number of tokens that can be withdrawn with a smart contract.

Here are the six main functions an ERC-20 token needs to implement;

The optional functions can assist in enhancing the usability of the standard token, which entails the symbol of the ticker, token name, and number of decimal places that a standard token can support. This makes the standard token appear nicer.

When all the functions are brought together, it creates an ERC-20 contract. Which becomes the main foundation of other cryptocurrencies, whether the security token, stable coin, or utility token. Some of the main examples of ERC-20 include DAI, uniswap (UNI), Basic Attention Token (BAT), sandbox (SAND), and Chainlink (LINK).

ERC-165 Token Standard

ERC-165 is a token standard that allows smart contracts to publish and detect any interface they implement. It offers developers a consistent way of an agreement to support a certain interface by leveraging the «SupportsInterface» function.

They can publish interfaces they support with contracts by adding other corresponding interface identifiers. The ERC-165 standard promotes compatibility and interoperability between the contracts in the Ethereum ecosystem.

ERC-721 Token Standard

The ERC-20 is a fungible token standard. Now, ERC-71 is the opposite, a non-fungible token standard (NFT), a special cryptographic token type that is not interchangeable by any individual specification.

An ERC-71 token cannot be changed with any other token since they have unique specifications. These tokens represent ownership of certain assets like collectibles, tickets, digital art, gaming items, or even virtual real estate.

When you compare it to other token standards, the ERC-721 token is more complex because of its multiple optional extensions and offers the main framework for developing, transferring, and owning tokens with unique features.

Like any other token type, NFTs are created similarly but have unique metadata and different values. One of the common projects developed under the ERC-721 is CryptoKitties. It is a game launched in 2017 on the Ethereum blockchain that enables players to sell, buy, and breed digital cats. The main markets where you can digitally sell or purchase NFT are Rarible and OpenSea.

ERC-777 Token Standard

The ERC-777 token standard was developed to assist in addressing the ERC-20 limitations. The token is designed to ensure efficiency for smart contracts in performing various tasks such as sending and receiving tokens through a mechanism called «Hooks.» Hooks are a token functionality that puts together messages that could have been two—notifying a contract and sending tokens—into just one.

Additionally, the ERC-777 token introduces other functionalities that can reject transactions from a blocked address.

ERC-777 has other features that stay backward and are compatible with ERC-20, apart from just rendering it obsolete. Thus, tokens developed on the ERC-20 standard can communicate freely with other ERC-777 tokens since they have the same standards and utilize the same basic functions.

ERC-1155 Token Standard

The ERC-155 token standard was designed to enhance some of the previous token standards by developing fungibility-independent tokens (which can be both fungible and non-fungible) and other gas-efficient token contracts. It’s just the ERC-721 and ERC-20 token standards that are merged with other complicating factors.

The NFT ecosystem Enjin was developed using the ERC-1155 token to create a single smart contract that handles different types of tokens. This standard was created to help solve the limitations of ERC-721, like the lack of support during batch transfers.

To transact multiple ERC-721 NFTs, one must do various user transactions. This blooded network increases action costs (gas fees). ERC-1155 makes it easy for users to transact multiple assets in just one smart contract. Therefore, it decreases the transfer, leading to network congestion while reducing transaction costs.

BEP-20 Token Standard

BEP-20 is a token standard that offers technical specifications for various tokens utilized on the BNB Chain, which underlies the exchange of Binance cryptocurrency. Although BEP-20 is based on ERC-20, it has adapted to the Binance ecosystem.

The decentralized exchanges (DEX) and decentralized applications operate smoothly with the BEP-20. The token standard offers flexible formats for developers to introduce other forms of tokens.

The main focus for Binance is to become a reliable alternative platform for the Ethereum blockchain, offering faster processing speeds and low transaction fees. BEP-20 gives a framework on how a certain token can be used, how it operates, and who is eligible to use it.

SPL Token Standard

Solana Programmable Token is a standard token designed for the Solana blockchain. It enables developers to develop and deploy tokens with high transaction speed aimed at decentralized finance (DeFi) applications and any other functionality that needs scalability.

This type of token is stored in the Solana Program Library. The library is a depositary of many software programs that operate in the Solana blockchain’s runtime. The program offers a standardized interface for using, creating, and destroying any compatible tokens using the Solana blockchain.

Unlike the ERC token standards, which can be separated into fungible and non-fungible tokens, the SPL tokens are composed of both. The functions of various SPL tokens differ within the SPL standard, offering a very low circulating supply.

SOL, one of the Solana blockchain's main fungible tokens, is a type of SPL token. Both the non-fungible and fungible tokens that can abide by the SPL token can freely communicate with SPL-compliant smart contracts and wallets. As a result, it offers an alternative Ethereum ecosystem for developers to create dApps. Additionally, it allows developers to create front ends like Solscan and offers meta information and data analytics for research.