Any digital asset that may be transferred between two parties is known as a token in the Blockchain ecosystem. The basic token of Bitcoin is BTC, but tokens can also be created and hosted on an existing blockchain using a smart contract. Some tokens, known as stable coins, track the value of fiat currency. Others, referred to as NFT, can represent antiques or works of art. Finally, tokens can represent ownership rights to real-world properties or businesses. This blog will focus on the primary token kinds and standards.
You should familiarize yourself with the definition of a smart contract standard to completely comprehend what a token standard is. A smart contract standard essentially outlines the requirements that a smart contract must meet to use the underlying blockchain network. These standards are application-level to blockchains built for smart contracts and other decentralized apps. Token standards, name registries, library or package formats, and many other things can be included in the smart contract standard.
Due to the fact that they essentially lay out the guidelines for utilising the blockchain network, smart contract standards are significant to the network because they might improve communication across different smart contracts operating in the same blockchain network. The growth of smart contracts and their compatibility can also support the expansion of the entire blockchain ecosystem.
It is useful to comprehend how a smart contract standard operates before diving into token standards. Fundamentally, smart contract standards are the requirements that a smart contract must follow in order to perform as intended on the underlying blockchain network.
For example, name registries, library-package formats, and token standards are examples of application-level specifications. Anyone with the required skills can build their own ERC token using this set of smart contract guidelines and precisely laid out requirements. In a nutshell, they make it possible for smart contracts to carry out their essential duties.
Token Standard
To comply with common standards, a smart contract must adhere to a set of rules and an interface known as the token standard. Token standards usually specify how to transfer tokens and how to maintain a consistent record of those transfers.
A standard's several implementations are allowed to coexist as long as they all adhere to the standard's interface and rules. For example, when a new project releases a token, it continues to be interoperable with the existing decentralized exchanges, wallets, etc. Standards ensure that smart contracts remain compatible.
ERC-20, ERC-721, ERC-777, and ERC-1155 are the four most widely used token standards, and Ethereum is the platform of choice for the majority of blockchain smart contracts.
Common Token Standards for the various Blockchains
a) Ethereum
A collection of technical documents called the Ethereum Request for Comment (ERC) provides instructions on how to create a smart contract. They enhance communication between applications and smart contracts and establish a specific set of functions for each type of coin.
An ERC may be created by anyone. However, it needs to go through the Ethereum Improvement Proposal (EIP) procedure, which is a document with the proposed features and procedures for the Ethereum blockchain network.
The Ethereum core developers will review and evaluate a developer's proposal after it has been submitted. The proposal will be approved, finalised, and put into use if the community views it as a crucial improvement to the blockchain ecosystem.
Here are some of the most popular ERC token standards.
ERC-20 Token Standard
A roadmap for producing fungible tokens on the Ethereum network is provided by the ERC-20 token standard.
Fungible refers to the property of being equal to and interchangeable among all tokens (or fractions of tokens). For instance, Alice's $1 and Bob's $1 are equivalent. They can trade dollars because they have the same value. 1 ETH has the same value as any other ETH, just like fiat money, which is fungible.
ERC-20 tokens are created by organisations and tech-focused businesses more often than other types of digital assets. They enable the organisation to alter the utility of the token, for example, by adding voting and reward features. The ERC-20 token standard is flexible, yet every ERC-20 coin has a set core functionality.
An ERC-20 token must carry out the following six essential tasks:
Total Supply - Used to determine a given ERC-20 token's total quantity of tokens.
Balance Of - It is used to calculate the token balance in an Ethereum wallet.
Transfer - Enables the user to assign a token's ownership to another.
Transfer From - Comparable to the transfer function in operation, with the extra benefit of enabling contracts to transfer tokens on behalf of users.
Approve - It is used to limit the number of tokens that a smart contract can withdraw.
Allowance - It enables the use of tokens from a specific balance and grants access to external addresses.
ERC-721 Token Standard
ERC-721 is a standard for non-fungible tokens, in contrast to ERC-20, which is a fungible token standard (NFTs). A unique class of cryptographic tokens called non-fungible tokens are not interchangeable with one another according to their own specifications. As a result of each token's distinctive requirements, it cannot be traded for another. They are therefore frequently used to symbolise digital collectibles, game objects, digital artwork, event tickets, domain names, and ownership records for tangible assets.
ERC-777 Token Standard
To overcome the drawbacks of ERC-20, there is ERC-777. Through a system known as "Hooks," this token standard improves the efficiency of sending and receiving tokens by smart contracts. Sending tokens and informing a contract are two separate messages that are combined into one by the function called hooks. Additionally, the ERC-777 adds the ability to reject transactions coming from addresses that are on a blacklist.
Another benefit of the ERC-777 token standard is that it preserves ERC-20's backward compatibility rather than making it obsolete. In other words, since both the ERC-20 and ERC-777 standards use the same fundamental functionality, tokens created in accordance with any standard can freely interact with one another.
ERC-1155 Token Standard
The goal of the ERC-1155 token standard is to combine the best features of its forerunners to produce fungibility-independent and gas-efficient token contracts. It is, in simple terms, a standard for contracts that can handle various token types. Or, in the words of Enjin, the company that developed them, "a single smart contract that can govern an endless number of tokens."
The Enjin team created this token standard to solve ERC-721's drawbacks, particularly the inflexibility of batch transfers. For instance, on ERC-721, a user would need to execute many transactions in order to transfer multiple NFTs. Due to the increase in transactions, the network would become overloaded and may experience high transaction costs.
This is a problem that ERC-1155 directly addresses by facilitating batch transfers, which enable the consolidation of numerous assets into a single smart contract. By doing this, it considerably lowers the possibility that a transfer may result in network congestion while also increasing transaction efficiency.
Token Standards for other Blockchains
Everybody basically has their own set of rules when it comes to the several smart contract protocols that are now in use. Several other blockchain initiatives, besides Ethereum, concentrate on the development of smart contracts. We will introduce some well-known projects in this part together with the corresponding token specifications.
Tron Blockchain
Tron Blockchain has three blockchain standards.
TRC-10
On the Tron mainnet in 2018, TRC-10 was the first token standard to be made available. TRC-10 tokens are frequently used as a payment method in decentralised applications and to build blockchain products because they are simple and inexpensive to produce.
They don't require support from the Tron Virtual Machine (as do TRC-20 tokens, see below), so issuers can create a TRC-10 token without needing to know programming languages. They can be issued through an application programming interface (API) or smart contract.
By spending 1,024 TRX, every Tron network account can produce a TRC-10 token. The only cost to utilise them after that is often the bandwidth used to transport them.
Before producing a TRC-10 token, users must provide the token's name, market capitalization, exchange rate to TRX, duration of circulation, number of bandwidth points it consumes, and stake in the token.
TRC-20
The TRC-20 standard is what Tron uses to include native Tron coins in smart contracts on the Tron network.
Using the Tron Virtual Machine, which serves as the platform for Tron smart contracts, TRC-20 tokens are issued. The standard for producing fungible tokens utilising the Ethereum network, ERC-20, and TRC-20 are completely compatible.
Like TRC-10 tokens, TRC-20 tokens can be exchanged for other tokens of the same kind, making them fungible like TRC-10 tokens.
The fact that developers can incorporate more intricate logic into their smart contracts with TRC-20 makes it possible to compare it to TRC-10 in some aspects.
Issuers should be aware of the expenses, nevertheless. According to the Tron whitepaper, TRC-10 token translation expenses are 1,000 times less expensive than TRC-20 token translation fees.
TRC-721
On the Tron network, non-fungible tokens (NFTs) may be issued in accordance with the TRC-721 rules.
A non-fungible token is one that is cryptographically distinct; unlike fungible tokens, they have a unique identifier and users cannot exchange them for another asset that is exactly the same.
The ERC-721 Ethereum NFT standard is compatible with the TRC-721 standard, which was released in late 2020.
TRC-721 allows developers to tokenize any tangible real-world object, such as works of art, music, clothing, and real estate, as well as to generate NFTs that represent special digital assets, such as sports highlights, GIFs, or in-game avatars.
Each TRC-721 coin has a blockchain address that serves as a proof of ownership for the person holding it.
There is much more to discuss about the token standards of other blockchains which we will do in the next blog.
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