What Are Token Standards in Crypto?

Token standards are essentially blueprints for how a cryptocurrency token operates. They outline the rules and norms that govern the behavior and functionality of these tokens. If you’re digging deeper into the world of cryptocurrencies, having a grasp of token standards is crucial. In this article will delve into what token standards are, why they are necessary, and explore some of the most prevalent ones in use today. Let’s take a look:

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What Are Token Standards?

As mentioned above, Token standards are blueprints that dictate how a cryptocurrency token behaves and operates on a blockchain network. These rules determine everything from how the token is created to how it functions within the network.

Cryptocurrency tokens are digital assets that exist on a blockchain. They can be used for various purposes like paying fees, staking for security, providing liquidity, and participating in governance. To ensure these tokens work smoothly and can interact with different applications, various token standards have been established.

These standards make sure that tokens follow the protocol of the blockchain they’re on and can work seamlessly across different applications. This makes it easier to create decentralized applications (dApps) and promotes liquidity and compatibility between different tokens.

How Do Token Standards Work?

Token standards establish the rules for how smart contracts function within a blockchain system. These rules define the parameters within which smart contracts must operate to perform basic functions.

Token standards enable any developer to create their own cryptocurrency token by standardizing interfaces and features. This standardization ensures consistency in data types, functions, and behaviors, allowing smart contracts for tokens to interact seamlessly with each other.

These standards are determined through proposals from blockchain developers and the community. For instance, Ethereum, the leading platform for smart contracts, uses Ethereum Improvement Proposals (EIPs) to establish standards for its core protocol, APIs, and smart contracts running on the Ethereum Virtual Machine (EVM).

Within Ethereum, Ethereum Requests for Comment (ERC) proposes standards for Ethereum-based applications, including smart contracts and tokens. These ERCs serve as technical documents outlining guidelines for smart contract development.

Key Takeaways:

• Token standards like ERC-20, TRC-20, and BEP-20 streamline token creation and management across different blockchains.
• These standards ensure interoperability, allowing tokens to work seamlessly with various platforms and applications.
• Standardization enhances efficiency by providing a framework for developers to create tokens and smart contracts.
• Token standards are foundational for decentralized finance (DeFi), enabling a wide range of financial services and applications.

Common Token Standards

The most common token standards you will come across in the crypto space include:

ERC-20

ERC-20 is the standard for Ethereum-based tokens, encompassing various types like utility tokens, security tokens, and stablecoins. It’s extensively used by projects developing tokens for dApps on Ethereum or sidechains. ERC-20 outlines six mandatory and three optional functions for token compliance.

The six primary functions cover aspects like total supply, wallet balance, ownership transfer, token transfer on behalf of users, and approval for maximum token withdrawal by smart contracts. Optional functions, such as token name, symbol, and decimal places, enhance token usability.

This standard empowers developers to create customized fungible tokens with utility, like staking or representation of voting rights. ERC-20 tokens enjoy interoperability and can be supported by various cryptocurrency exchanges and wallets. Popular examples include Chainlink (LINK) and Uniswap (UNI).

ERC-721

Unlike ERC-20, which deals with fungible tokens, ERC-721 is a standard for non-fungible tokens (NFTs). NFTs are unique cryptographic tokens that can’t be exchanged for one another due to their distinct specifications. They’re used to represent digital collectibles, game items, digital art, event tickets, domain names, and ownership records for physical assets.

One of the most common examples of ERC-721 tokens is CryptoPunks NFTs. These tokens are unique and not interchangeable, making them ideal for representing digital assets with individual characteristics and ownership records.

ERC-777

ERC-777 is designed to improve upon the ERC-20 standard by addressing its limitations. It introduces “Hooks,” which streamline the process of sending tokens and notifying a contract in a single message. This enhances the efficiency of smart contracts when sending and receiving tokens.

One key feature of ERC-777 is its focus on enabling more sophisticated interactions in token trading. Additionally, it introduces the capability to reject transactions from blacklisted addresses, enhancing security measures.

Importantly, ERC-777 maintains backward compatibility with the ERC-20 standard. This means that ERC-20 tokens and ERC-777 tokens can interact seamlessly, as both standards share the same underlying functionality.

ERC-1155

The ERC-1155 token standard combines the strengths of previous standards to create efficient and flexible token contracts. Developed by Enjin, it’s designed to manage multiple token types independently of fungibility and gas efficiency.

Unlike ERC-721, which lacks flexibility for batch transfers, ERC-1155 allows for bundling multiple assets in a single smart contract. This feature addresses the issue of network congestion and high transaction costs associated with sending multiple NFTs using ERC-721.

By supporting batch transfers, ERC-1155 significantly reduces the number of transactions needed to transfer multiple assets, making it more efficient and cost-effective for users.

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BEP-20

BEP-20 is a token standard within the Binance Smart Chain (BSC), providing a technical blueprint for the creation of various tokens on this platform. Developed to cater to the needs of BSC, it facilitates the launch of tokens like peggy coins, utility tokens, stablecoins, and more.

 BEP-20 introduces functionalities such as blacklisting, minting, and pausing token burns, improving the capabilities of token contracts. Central to the BEP-20 standard are its main functions, including TotalSupply, which determines the total token supply of a specific BEP-20 token, and BalanceOf, which reveals the token balance of a particular address. Additionally, Transfer permits users to transfer token ownership to another address, while TransferFrom enables token transfer on behalf of a user through a smart contract. Approve sets limits on the number of tokens a smart contract can withdraw, and Allowance specifies external addresses authorized to spend tokens. This comprehensive set of functions ensures the smooth operation and management of tokens created under the BEP-20 standard on the Binance Smart Chain.

TRC-20

TRC-20 serves as the token standard for creating fungible tokens on the TRON blockchain, dictating their functionality. Similar to ERC-20, it encompasses six required functions and three optional functions for token creation, transfer, and operation.

Operating on the TRON blockchain, TRC-20 tokens benefit from high transaction throughput and low fees, ensuring efficient transactions. This standard emphasizes all-in-one functionality and highly utilizable tokens through smart contracts. TRC-20 tokens facilitate fast and convenient payments with instant and scalable transaction processing.

Additionally, TRC-20’s compatibility with ERC-20 allows for the extension of ERC-20 code to TRC-20 tokens, providing reliable functions. Developers can easily create custom TRC-20 tokens on the TRON blockchain, while holders can store them in supported wallets like TronLink and utilize them in TRON-based dApps.

Advantages of Token Standards

Token standards offer several advantages, enhancing the functionality and interoperability of digital assets. These advantages include:

Interoperability

Token standards ensure that all products built using that standard can interact or work together. 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. For instance, ERC-20 assets are interoperable with other products and services developed using the same token standard.

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.

Efficiency

Token standards also facilitate the interaction between smart contracts. After smart contracts follow token standards and deploy tokens, they may be used to monitor the created tokens.

Token standards like ERC-20 and BEP-20 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.

Final Takeaway

Token standards like ERC-20, TRC-20, and BEP-20 have significantly contributed to the development of the cryptocurrency space by establishing consistent rules for creating both fungible and non-fungible tokens. While different blockchains may define their own standards based on their protocols, many draw inspiration from the protocols outlined in Ethereum’s ERC standards. Standardization is crucial to providing a framework for smart contracts to utilize tokens in their implementation and ensuring compatibility with various decentralized applications.

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