Exploring the World of Token Standards: A Beginner's Guide

Token standards are sets of rules and conventions used to govern how a cryptocurrency, or crypto token, works. These standards are used as blueprints for the creation of most cryptocurrencies, and they define key functionalities and properties of blockchain tokens. In this blog post, we will explore the benefits of using token standards and some of the most common token standards in the crypto and DeFi space.

One of the main benefits of using token standards is interoperability. Interoperability ensures that all products built using the same standard can interact with each other. This means that if a project issues a token built according to a token standard, the new token will remain compatible with existing platforms and applications like wallets. This makes it easier to trade different cryptocurrencies and eliminates the need to create specific wallets for specific tokens.

Another benefit of using token standards is composability. In programming, having a system that is composable allows developers to reuse existing components to create new products. This applies to token creation as well. By using token standards, less time is spent on basic functionality, so developers have more time to experiment and innovate. This can lead to more creative and unique use cases for blockchain technology.

Token standards also facilitate the interaction between smart contracts, which leads to more efficiency. After smart contracts follow token standards and deploy tokens, they can be used to monitor the created tokens. Token standards come with essential functions, including address retrieval and token balances, allowing smart contracts to monitor tokens more efficiently. For instance, to inspect an ERC-20 token, a developer can use an interface called the Contract Application Binary Interface (ABI) to track token transfers and other data.

Now, let's take a look at some of the most common token standards in the crypto and DeFi space.

ERC-20: In 2015, Fabian Vogelsteller proposed the ERC-20, a token standard that would later be the main outline for developers to design their own tokens, including virtual tokens, staking tokens, and virtual currencies. The ERC-20 is a token standard to develop assets that follow common rules and are interchangeable with one another (i.e., fungible). So if you create 1,000 units of an ERC-20 token, each unit will have the same functionality. The ERC-20 token standard is used on the Ethereum blockchain.

ERC-721: A great portion of the non-fungible tokens (NFTs) on Ethereum all share the same token standard, ERC-721. Whether it’s a limited edition NFT or a Proof of Attendance Protocol (POAP), your NFT was likely created with the same blueprint. So what makes NFTs unique? According to one of the guidelines, to be an ERC-721 token, the asset must have a tokenId that is globally unique. ERC-721 functionalities include token transfer, current balance, total supply, and being globally unique.

ERC-1155: This is a type of token standard that allows for the creation of both fungible and non-fungible tokens in a single smart contract. This allows for more flexibility in the types of assets that can be created, and it also allows for the creation of more complex use cases.

In conclusion, token standards are an essential part of the crypto and DeFi space. They provide a framework for the creation of new tokens, and they also make it easier to interact with and trade different cryptocurrencies. With the increasing popularity of blockchain technology, token standards will continue to play a crucial role in the development of new and innovative use cases.