Introduction
If you’re exploring blockchain and cryptocurrency, you’ve likely come across different Ethereum token standards like ERC-20, ERC-721, and ERC-1155. Each serves a unique purpose in the Ethereum ecosystem, from fungible tokens used in DeFi to non-fungible tokens (NFTs) revolutionizing digital ownership. In this guide, we’ll break down the key differences between these token standards and when to use each one.
What Are Ethereum Token Standards?
Ethereum token standards are predefined rules that dictate how tokens function within smart contracts. These standards ensure that tokens remain compatible with wallets, exchanges, and decentralized applications (dApps).
ERC-20: The Standard for Fungible Tokens
Overview
ERC-20 is the most widely used Ethereum token standard and is designed for fungible tokens—meaning each token is identical and interchangeable. These tokens are commonly used for cryptocurrencies, stablecoins, governance tokens, and utility tokens.
Key Features
- Fungible: Each ERC-20 token is identical to another of the same type.
- Divisible: Tokens can be broken down into smaller units (e.g., 0.01 ETH).
- Widely Supported: Compatible with most wallets, exchanges, and DeFi protocols.
Common Use Cases
- Cryptocurrencies like USDT, USDC, and DAI.
- Governance tokens in DAOs (Decentralized Autonomous Organizations).
- Utility tokens for accessing platform-specific services.
ERC-721: The Standard for Non-Fungible Tokens (NFTs)
Overview
Unlike ERC-20, ERC-721 tokens are unique and non-fungible, meaning each token has distinct properties that make it different from another. This makes them ideal for NFTs (Non-Fungible Tokens), which represent digital art, collectibles, virtual real estate, and more.
Key Features
- Non-Fungible: Each token has a unique ID and cannot be exchanged on a 1:1 basis.
- Indivisible: Unlike ERC-20, ERC-721 tokens are typically whole units (you can’t own half an NFT).
- Metadata Support: Can store unique properties such as images, attributes, and descriptions.
Common Use Cases
- Digital collectibles (CryptoPunks, Bored Ape Yacht Club).
- Virtual real estate (Decentraland, Sandbox).
- In-game assets (Axie Infinity, Gods Unchained).
ERC-1155: The Multi-Token Standard
Overview
ERC-1155 is a hybrid token standard that allows both fungible and non-fungible tokens to exist in a single smart contract. It was created to improve efficiency, especially for blockchain gaming and digital asset platforms.
Key Features
- Multi-Asset Support: A single contract can contain multiple tokens (fungible, semi-fungible, or non-fungible).
- Batch Transfers: Allows sending multiple tokens in a single transaction, reducing gas fees.
- Efficient Storage: Saves blockchain space compared to deploying multiple ERC-20 or ERC-721 contracts.
Common Use Cases
- Blockchain gaming (items, weapons, skins, and in-game currencies).
- Digital marketplaces (allowing multiple asset types within one ecosystem).
- Fractionalized NFTs (a mix of ERC-20 and ERC-721 properties).
Key Differences at a Glance
| Feature | ERC-20 | ERC-721 | ERC-1155 |
|---|---|---|---|
| Fungibility | Yes | No | Both |
| Use Case | Cryptocurrencies, Governance | NFTs, Digital Art, Gaming | Gaming, Hybrid Assets |
| Transfer Efficiency | Single Token | Single Token | Multiple Tokens |
| Metadata | Basic | Extensive | Flexible |
| Gas Fees | Standard | High for multiple NFTs | Lower due to batch transfers |
Which Token Standard Should You Use?
- Use ERC-20 if you need a fungible token for payments, governance, or utility.
- Use ERC-721 if you’re creating unique digital assets, like NFTs.
- Use ERC-1155 if you need a combination of both or want to optimize gas fees in gaming and marketplaces.
Conclusion
Understanding the differences between ERC-20, ERC-721, and ERC-1155 is crucial for anyone looking to develop or invest in blockchain-based assets. Each standard serves a unique role in the Ethereum ecosystem, from powering DeFi applications to revolutionizing digital ownership through NFTs. Whether you’re building a cryptocurrency, a gaming platform, or a marketplace, choosing the right token standard is key to success.