Token Standards (ERC-20, ERC-721)

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Token Standards: ERC-20 and ERC-721 Explained for Beginners

Welcome to the world of cryptocurrency! You’ve probably heard about Bitcoin and Ethereum, but there's a whole universe of other digital assets called *tokens*. These tokens aren’t all the same, though. They follow different “rules” or standards. This guide will explain two of the most important token standards: ERC-20 and ERC-721. Understanding these standards is crucial if you plan on trading cryptocurrency or interacting with decentralized applications (dApps).

What are Token Standards?

Imagine you're building with LEGOs. If everyone used their own unique brick sizes and shapes, nothing would connect! Token standards are like a universal set of instructions for creating and managing tokens on a blockchain, specifically the Ethereum blockchain. They ensure that different tokens can work together seamlessly with wallets, exchanges like Register now, and dApps. Without standards, things would be chaotic and insecure.

ERC-20: The Standard for Fungible Tokens

ERC-20 stands for “Ethereum Request for Comments” number 20. It’s the most common standard for creating *fungible* tokens.

  • Fungible* means that each token is identical and interchangeable with any other token of the same type. Think of a dollar bill – one dollar is worth the same as any other dollar.

Here are some examples of ERC-20 tokens:

ERC-20 tokens are used for a wide range of purposes, including:

  • **Utility Tokens:** Grant access to a specific service or product.
  • **Payment Tokens:** Used as a means of exchange.
  • **Security Tokens:** Represent ownership in an asset like a company.

How ERC-20 Works: Key Features

Every ERC-20 token contract (the code that defines the token) must implement specific functions. These functions allow for actions like:

  • **Transfer:** Sending tokens from one wallet to another.
  • **Approve:** Allowing a dApp to spend your tokens on your behalf. (Needed for things like decentralized finance – DeFi)
  • **BalanceOf:** Checking how many tokens an address holds.
  • **Total Supply:** Determining the total number of tokens in existence.

You can explore ERC-20 token transactions using a blockchain explorer like Etherscan.

ERC-721: The Standard for Non-Fungible Tokens (NFTs)

ERC-721 is the standard for *non-fungible* tokens, commonly known as NFTs.

  • Non-fungible* means each token is unique and cannot be replaced by another. Think of a painting – there's only one Mona Lisa.

Examples of ERC-721 tokens:

NFTs are used to represent ownership of unique items. They’re becoming increasingly popular for digital art, collectibles, and even real-world assets. You can trade these on exchanges like Start trading.

How ERC-721 Works: Key Differences

Unlike ERC-20, ERC-721 tokens each have a unique identifier. This ID distinguishes one NFT from another. The core functions for ERC-721 include:

  • **SafeTransferFrom:** Securely transferring ownership of an NFT.
  • **OwnerOf:** Determining the current owner of an NFT.
  • **TokenURI:** A link to metadata describing the NFT, like its image and attributes.

ERC-20 vs. ERC-721: A Comparison

Here's a table summarizing the key differences:

Feature ERC-20 ERC-721
**Fungibility** Fungible (interchangeable) Non-fungible (unique)
**Use Cases** Payment, utility, security tokens Digital art, collectibles, virtual assets
**Token Identity** All tokens are identical Each token has a unique ID
**Divisibility** Typically divisible (e.g., 0.5 LINK) Typically indivisible (you can’t own half an NFT)

Practical Steps: Interacting with Token Standards

1. **Set up a Wallet:** You’ll need a wallet like MetaMask to store and manage your tokens. 2. **Connect to a dApp:** Many dApps require you to connect your wallet to interact with their services. 3. **Check Token Contracts:** Use a blockchain explorer like Etherscan to verify the token contract address and ensure it’s legitimate. 4. **Understand Gas Fees:** Transactions on the Ethereum blockchain require “gas” – a fee paid to miners. Gas fees can vary depending on network congestion. 5. **Trading:** You can trade ERC-20 tokens on centralized exchanges like Join BingX and decentralized exchanges (DEXs) like Uniswap. NFTs are primarily traded on NFT marketplaces like OpenSea.

Beyond ERC-20 and ERC-721

While these are the most common standards, others exist:

  • **ERC-1155:** Allows for both fungible and non-fungible tokens within a single contract.
  • **BEP-20:** The standard for tokens on the Binance Smart Chain.
  • **SPL:** The standard for tokens on the Solana blockchain.

Resources for Further Learning

Understanding token standards is a fundamental step in navigating the world of cryptocurrency. It helps you make informed decisions and participate safely in the growing ecosystem.

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