NFTs-(Part 3)Token Standards on the Blockchain
I’m going to breakdown each token standard and explain how they work below:
If you’re familiar with the technicalities of how NFTs work then you know that there are three main token standards; ERC-20, ERC-721, and ERC-1155. If you read Part 1 of this series then ERC-20, ERC-721, and ERC-1155 might sound familiar to you.
Known as the most common standard, ERC-20 is a blockchain-based asset that works like Bitcoin Cash, Bitcoin, and Ether. So basically ERC-20 allows us to have coins like Ethereum. Because of this, ERC-20 is the standard that the majority of people interact with most. ERC-20 can hold value, which users can easily send and receive.
ERC-20 was created on the Ethereum blockchain. This is why it is one of the most popular standards; aside from being an official protocol for proposing developments to the Ethereum network, the token standard created rules applicable for every ERC-20 token.
The rules put in place have contributed to the popularity of this standard as it created a way to conduct standard transactions on the Ethereum blockchain.
With the ICO boom of 2017, we know that more and more companies are creating their own currencies and we don’t see any sign of the growth slowing any time soon. In 2020, over 300,000 ERC-20 tokens were available on the Ethereum network, and experts say that the number is only going to grow larger from here.
The token standard that most people have probably heard the most buzz about recently is ERC-721. Currently, the majority of NFTs are implemented as ERC-721 tokens. Unlike the rules for ERC-20, ERC-721 is unique in that it requires each token to be different. Basically, each token is created to represent an asset that’s either physical or virtual such as collectibles, artwork, and property
ERC-721 is packed with quality attributes and standard functions that require users to follow existing rules to either trade or manage their assets effectively. With this standard a much broader spectrum of rules allowed smart contracts to become more complex and create rules and instances that haven’t been possible with traditional blockchain standards.
The standardization of this on the Ethereum blockchain has led to the mass adoption of NFTs. Because there isn’t any way to hold multiple tokens in one wallet, ERC-721 allowed developers to build on a system that was already native to most users.
By adding this option to the Ethereum blockchain, it’s allowed users to manage their assets from other projects in the same Ethereum based wallet. Why? Because it’s all Ethereum.
ERC-721 is commonly used in gaming, blockchain, digital art, and other industries. It is also estimated that more than a million ERC-721 tokens are developed.
In 2019 a new token standard was approved on the Ethereum blockchain, called ERC-1155. This token standard combined both the ERC-20 standard and the ERC-721 token standard to create a more efficient way to trade assets on the Ethereum blockchain.
There are several rules to the ERC-1155 token standard that make it different from ERC-20 and ERC-721. One of the biggest features of ERC-1155 is that it’s both fungible and non-fungible. The standard was created to use only one contract to deploy multiple smart contracts on the blockchain.
One of the biggest problems with the way that ERC-20 and ERC-721 contracts were executed was that they required a new block to be deployed with each transaction that was made. When more transactions are made, then there are more blocks being created, which can lead to an increase in “gas” fees. Gas is the amount of CPU power that the network needs to process the transaction. The more transactions, the more gas that’s needed, thus the high gas fees.
ERC-1155 increases the possibilities and efficiency in the process to create NFTs. In a single smart contract, people can now utilize infinite numbers of both Fungible and Non-Fungible items.
Many individuals complain about the deployment of separate smart contracts for each token because it is time-consuming and made the network run slow. This new standard cuts down on the transactions on the network, which is crucial to lowering gas fees and keeping the barrier to entry low for artists and collectors that are trying to break into the NFT space.
We hope that you found this breakdown of the Tokens Standards helpful. Let us know if you have any questions. We are always here to help!