ERC Tokens: Everything to Know
By Beluga Research August 10, 2023
- ERC (Ethereum Request for Comments) is a standard that defines rules for creating cryptocurrency tokens on the Ethereum blockchain
- ERC tokens originated in 2015 with the ERC-20 standard, which gained popularity due to its compatibility with wallets and exchanges
- Other standards like ERC-721, ERC-1155, and ERC-777 cater to specific use cases
- ERC tokens are created and managed through smart contracts on the Ethereum blockchain, offering a transparent and trustless environment for token transfers
ERC (Ethereum Request for Comments) is a standard that defines rules for creating cryptocurrency tokens on Ethereum. The Ethereum blockchain, conceived by Vitalik Buterin in 2013, introduced a revolutionary concept by enabling the execution of programmable smart contracts. Ethereum's native cryptocurrency, ether (ETH), serves as the fuel for executing these smart contracts. However, the Ethereum platform also allows the creation of custom tokens that operate on top of the Ethereum blockchain. These tokens are commonly referred to as ERC tokens.
A Brief History
The concept of ERC tokens emerged in 2015 when Ethereum's creator Vitalik Buterin introduced the ERC-20 standard. ERC-20 tokens quickly gained popularity due to compatibility with Ethereum wallets and exchanges, making them easily tradable and transferable. This standardization provided a framework for developers to create tokens without having to build an entire blockchain from scratch.
As the Ethereum ecosystem expanded, so did the need for more specialized token standards. This led to the development of various ERC standards such as ERC-721, ERC-1155 and ERC-777, each catering to specific use cases and requirements. ERC-721, for instance, introduced the concept of non-fungible tokens (NFTs), which revolutionized the world of digital collectibles and unique digital assets.
ERC: Everything to Know
ERC tokens are created and managed on the Ethereum blockchain, leveraging the platform's underlying smart contract functionality. Smart contracts are self-executing agreements with predefined rules and conditions encoded within them. These contracts automatically execute actions when specific conditions are met, providing a trustless and transparent environment for token transfers and interactions.
ERC-20 tokens, the most widely adopted standard, follow a set of six required functions and three optional functions. The required functions include the total supply of tokens, balance of tokens for a specific address, transferring tokens from one address to another and approving the transfer of tokens on behalf of an address. Optional functions include providing a name, symbol, and the number of decimal places for a token.
ERC-721 tokens, on the other hand, are unique and indivisible tokens. They find extensive use in applications such as gaming, digital art and decentralized finance (DeFi). ERC-721 tokens introduce the concept of ownership and uniqueness, allowing each token to have distinct attributes and properties. This standard enables the creation and trading of rare digital assets, giving rise to the booming NFT market.
Another notable ERC standard is ERC-1155, which combines the features of both ERC-20 and ERC-721. ERC-1155 tokens can represent both fungible and non-fungible assets, allowing for more flexibility in token design. This standard is particularly useful in applications where a combination of different token types is required, such as gaming platforms that incorporate both in-game currencies and unique items.
ERC-777 is a more recent standard that aims to enhance the functionality of ERC-20 tokens. It introduces advanced features such as operators, which allow designated addresses to manage tokens on behalf of others. This standard also enables the implementation of hooks, which are functions triggered before or after specific token transfers. ERC-777 tokens provide greater control and customization options for token developers.
To understand ERC tokens, it is important to have a basic understanding of Ethereum. Ethereum is a decentralized, open-source blockchain platform that allows developers to build and deploy smart contracts and dApps. Smart contracts are self-executing contracts with predefined rules and conditions written into their code. They automatically execute transactions and actions when specific conditions are met. Ethereum's native cryptocurrency is ether (ETH), which is used to pay for transaction fees and incentivize miners to secure the network.
ERC standards are a set of rules and specifications that define how tokens and smart contracts should behave on the Ethereum blockchain. These standards ensure that tokens created on Ethereum can be easily recognized and interacted with by wallets, exchanges and other smart contracts. ERC standards also provide a common language and interface for developers, making it easier to integrate different tokens and dApps.
- ERC-20: One of the most well-known and widely used ERC tokens is the ERC-20 standard. ERC-20 defines a set of rules and functions that enable the creation of fungible tokens on the Ethereum blockchain. Fungible tokens are interchangeable and identical to each other, meaning that each token holds the same value as any other token of the same type. This standard has been instrumental in the rise of Initial Coin Offerings (ICOs) and the creation of countless utility tokens.
- ERC-721: In contrast to ERC-20, ERC-721 is a standard for creating non-fungible tokens (NFTs) on Ethereum. NFTs are unique digital assets that represent ownership or proof of authenticity of a specific item, such as artwork, collectibles, or virtual real estate. Each ERC-721 token has a distinct value and cannot be exchanged on a one-to-one basis like ERC-20 tokens. The ERC-721 standard has revolutionized the digital art and collectibles industry by enabling provable ownership and creating new avenues for creators and collectors.
- ERC-1155: This is a hybrid token standard that combines the features of both ERC-20 and ERC-721. It allows for the creation of both fungible and non-fungible tokens within the same smart contract. This flexibility makes ERC-1155 ideal for projects that require a combination of both types of tokens. For example, a game developer could use ERC-1155 to create a game currency (fungible) and unique in-game items (non-fungible) in a single contract, simplifying the development and management process.
- ERC-20 vs. BEP-20 vs. TRC-20: While ERC-20 is the most widely adopted token standard on Ethereum, other blockchain platforms have also developed their own token standards. For example, Binance Smart Chain (BSC) uses the BEP-20 standard, and TRON uses the TRC-20 standard. Although these standards have similarities to ERC-20, they have slight differences in their implementation and compatibility. Developers need to be aware of these differences when deploying tokens on different blockchain platforms.
- Interoperability - ERC tokens are built on the Ethereum blockchain, which is one of the most widely adopted and established blockchain networks. As a result, ERC tokens can easily interact and integrate with various decentralized applications (dapps) and smart contracts developed on the Ethereum platform.
- Token Standardization - The ERC standard provides a uniform framework for creating and managing tokens, ensuring compatibility and consistency across different projects. This standardization simplifies the development process for token creators and facilitates the integration of ERC tokens into various wallets, exchanges, and other platforms.
- Decentralized Exchanges - ERC tokens have fueled the growth of decentralized exchanges (DEXs) on the Ethereum network. These exchanges allow users to trade ERC tokens directly from their wallets, eliminating the need for intermediaries and enhancing privacy and security. The popularity of DEXs has provided users with greater control over their funds and increased liquidity for ERC tokens.
- Smart Contract Functionality - ERC tokens can leverage the power of smart contracts, enabling developers to embed complex logic and automate various processes. Smart contracts facilitate features such as token issuance, distribution, and governance, offering enhanced functionality and programmability to ERC tokens.
- Community Support and Development Tools - The Ethereum ecosystem boasts a vibrant community of developers, enthusiasts, and contributors. This active community has resulted in the development of numerous tools, libraries, and frameworks specifically tailored for ERC tokens. These resources make it easier for developers to create, deploy, and manage ERC tokens, fostering innovation and growth within the Ethereum ecosystem.
- Scalability Challenges - As the popularity of ERC tokens grows, the Ethereum network has faced scalability challenges. The limited throughput of the Ethereum blockchain can lead to congestion and higher transaction fees during periods of high demand.
- Gas Fees - Every transaction and smart contract execution on the Ethereum network requires gas, which is a unit of computational effort. Gas fees are paid by users to compensate miners for processing these transactions. The cost of gas has increased significantly during periods of network congestion, making it more expensive to interact with ERC tokens on the Ethereum blockchain.
- Limited Token Interoperability - While ERC tokens enjoy interoperability within the Ethereum ecosystem, they may face challenges when trying to interact with tokens on other blockchain networks. Cross-chain interoperability solutions are being developed to address this limitation, but the current landscape still presents obstacles for seamless token transfer and interaction across different platforms.