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Token Standards: ERC-20 vs. ERC-721 vs. ERC-1155
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ERC-20, ERC-721, and ERC-1155 are three major protocols or token standards approved by the Ethereum blockchain network to run in the ecosystem. Since Ethereum is the most popular and dominating blockchain in the market, these are the most popular token standards currently in effect. Each of these token standards has particular features that separate them from each other. Before we delve deeper into a detailed discussion, let us give you a brief idea.
The three tokens are based on the degree of fungibility and the evolution of NFT. ERC-20 was the first token introduced in the Ethereum blockchain. It was used to (and still is) mint fungible tokens. Then the system brought a new token standard: ERC-721, which is used to mint non-fungible tokens. In 2019, ERC-1155 came into play. It is the hybrid between these two tokens. In fact, creating non-fungible, fungible, and semi-fungible tokens in one smart contract is the USP of ERC-1155.
Let’s have a closer look at each one of them.
Evolution of Ethereum token standards
Proposed in 2015, ERC-20 was finally integrated with the Ethereum blockchain in 2017. The script token standard is widely used in the decentralized ecosystem for several purposes. Since ERC-20 is a set of guidelines to regulate certain actions in the blockchain, most of its users are organizations and governing bodies. As you already know, ERC-20 is a fungible token used for identical entities. That makes it useful for stablecoin creation, ICO (Initial Coin Offerings), Crowdfunding, and similar events.
The crypto bull run of 2017 might have been a significant factor behind the rise of ERC-20 tokens. Tether, Chainlink, USDC, DAI -- are all prime examples of cryptocurrencies built on the foundation of ERC-20 tokens. Despite being the popular token standard, it cannot be the jack of all trades. As a result, the new Ethereum token standard was later introduced.
Unlike its predecessor, ERC-721 is specialized in non-fungible tokens. Meaning, digital entities that are unique and can’t be replaced by anything are minted based on the guidelines of this token. So basically, you can put it like this: If ERC-20 was invaluable for bringing new cryptocurrencies to the market, ERC-721 is critical for digital assets that don’t necessarily exist in the form of a digital currency.
Dieter Shirley, founder, and CTO of CryptoKitties, initially presented the idea of the new token as an Ethereum Improvement Proposal (EIP) in 2017, which was finally approved by the blockchain governing body in 2018.
The recent boom of NFT that you’re experiencing can be credited to the emergence of ERC-721. The new protocol allowed creating a marketplace for artists, gamers, and everyone who has something unique to sell. The sale of a $69 million digital artwork by the artist named Beeple wouldn’t have been possible had there not been this token standard.
Created by Enjin CTO Witek Radomski in 2018, ERC-1155 opened a new window in the Ethereum blockchain. It allowed users to mint both fungible and non-fungible tokens in one smart contract. What it essentially did was fill a vacuum in the industry. Now, anything you need regarding NFT could be solved in one place, and that makes ERC-1155 a game-changer.
Not only that, the easy-to-use interface proved to be a much more efficient place for newcomers. In their own words, “the core concept behind ERC-1155 is that a single, smart contract can govern an infinite number of tokens.” The new token reduces gas costs by 80%-90%, which is another relief for artists and gamers.
“Horizon Games developer Phillippe Castonguay was able to use a technique called Balance Packing (storing 16 lower-resolution tokens in a single ID) to achieve 80-90% gas savings compared to regular transfers,” said Radomsk.
If you know anything about NFT, you know that fungibility is the primary concern. But that’s just one feature of this system. Because you can’t always deal with a singular, most unique identity. Sometimes you’re dealing with replicas, copies, identical materials with no difference whatsoever. And it’s not just about NFTs; organizing crowdfunding, ICOs, bringing more cryptocurrencies to the market are some of the major applications. All of these applications require a degree of features and strict guidelines.
These three token standards are just the beginning of a highly efficient and inclusive digital ecosystem. The evolution of token standards is happening at a much higher speed, so it won’t be surprising to see a drastic advancement of blockchain in the next few years.
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