It can be a bit confusing for someone new to the cryptocurrency world. This article will introduce the terms of the token standards ERC20, ERC721, etc. Everything may seem strange to you now, but once you understand what they do, it's easy to understand their concepts.

What is an ERC token

The Ethereum ecosystem is decentralized, but someone still needs to set the rules, issue upgrade requests, and develop standards to define what's possible on the blockchain. To do so, a majority of Ethereum users need to submit an Ethereum Proposal (EIP), discuss the specifics, and vote on whether to reject or proceed with the proposal.

Now, there are several types of EIP that correspond to different categories of improvements and additions. One of these types is defined by core Ethereum developers to propose, discuss and implement different technical standards for creating tokens, smart contracts, apps, wallet formats, etc., on Ethereum.

This subcategory of EIP is called Ethereum Proposal for Comment, also known as ERC. So far, multiple "Ethereum proposals for Comment" have been used to set standards for tokens that can be created on Ethereum. And all tokens created on Ethereum must follow the standards set by these ERCs. Therefore, these representatives are called ERC tokens.

Three ERC standards are currently the most widely used on Ethereum: ERC20, ERC721, or ERC1155. Lest you be confused, the numbers after ERC are simply "request for comment" ordinals for these standards.

But what exactly do these standards mean, and why do we need them? Let's get this straight.

Understand the ERC token standard

ERC20: Alternative/homogenized token standard

ERC20 was first implemented in 2015. Using this token standard, developers can create alternative/homogeneous tokens for Ethereum-based applications or protocols.

First, you can think of a "homogenized token" as any regular blockchain-based currency. The term "homogenization" simply means that you can exchange one unit of token for any other unit of that token because they represent the same value. At this point, take crypto assets like UNI or LINK, the Ethereum-based protocols Uniswap or Chainlink's ERC20 tokens. Each such token is homogeneous, since a UNI or LINK token is always equal to any other UNI or LINK token.

This means that you can exchange the above tokens one-to-one. It does not matter which UNI you have, as their base value is always the same as all other UNI tokens.

ERC721: Standard for non-homogeneous tokens

As blockchain becomes more widely used, there is a need to tokenize and represent the unique data on the blockchain. Thus the ERC721 token standard was introduced. With the ERC721 standard, you can create non-fungible/non-homogeneous tokens, meaning that each token has a unique value, represents a unique digital object that can be verified and cannot be exchanged with each other like ERC20 tokens.

So suppose you want to represent a piece of digital art on a blockchain. Obviously not in ERC20 tokens. You can use ERC721 standard tokens instead to create NFT artwork. The NFT of this digital work of art can easily prove the authenticity of the work of art and its ownership record.

Since ownership records and identities of NFT art are unchangeable and stored on a blockchain, the move also avoids the forgery of any artist's original work.

ERC1155: Multiple token standard

The problem with the ERC20 and ERC721 standards is that they only allow a smart contract to support a single type of fungible/homogeneous or irreplaceable/non-homogeneous token. Therefore, a new smart contract must be written each time a new token is deployed. In addition, neither of the above criteria provides a method for creating semi-substitutable/semi-homogeneous tokens.

This resulted in the ERC1155 token standard, which allows Ethereum developers to create homogeneous, semi-homogeneous, and non-homogeneous tokens using the same standard. In addition, with ERC1155, a single contract can support multiple types of individually configurable tokens, reducing the complexity of the token creation process. That's a little complicated, isn't it? Let's simplify this a little bit.

Suppose a developer wants to develop an NFT game, and they plan to create a homogeneous token to be used as currency in the game, as well as multiple non-homogeneous tokens to represent unique assets in the game, such as skins, guns, goods, etc. With the ERC20 and ERC721 standards, they would have to write new smart contracts to support each new asset type created. However, with ERC1155, they can write a single contract to support all kinds of tokens they want to have in the game.

None of this means that one standard is better than another; They just have different uses.

Infinite possibilities on Ethereum

Ethereum has given a big boost to blockchain, which is much more than a secure digital currency technology. It was able to propose and develop new token standards, broadening the usefulness of the Ethereum network.

Today, thanks to the innovation, artists can create unique tokens, on behalf of its art creators can express its scarcity and created works of monetization, game developers can use the props in the game to the players to transfer the value of the real world, it also can create a kind of management by the user on the Internet in the new economy... This is unheard of and unprecedented.