Everything You Should Know About Ethereum Tokens
Ethereum is currently the world’s second most popular cryptocurrency. What most people don’t know though, is there’s more to it than just the cryptocurrency token ETH.
Ethereum is actually a decentralized platform on which smart contracts are written, run and deployed. It’s also the base platform that supports many decentralized apps.
Because lots of dApps can be deployed there, it is very easy to create ethereum based tokens. This is why many ICO tokens and projects are created on the same platform. With a combination of this tokenization and smart contracts, project fulfilment, tracking and monitoring becomes very easy.
Every token created on the platform has to adhere to a standard. These standards determine the token’s function, performance and execution. Think of these standards are variants of an OS. For example, you can compare them to how software perform on the various windows platforms.
The most popular of ethereum tokens are the ERC-20 standard tokens. Yet, ethereum has quite a few other standards that you can adopt when building your own dApps.
These offer differing functions and are sometimes, upgrades of the ERC-20 standard. The other token standards include ERC-223, ERC-721, ERC-777 and ERC-820.
Let’s take a quick look at each token standard and highlight their functions, shall we?
ERC-20 Token Standard
This is most common ethereum token standard. It serves as a baseline for many dApps currently running on the platform. This token standard is popular because of its ease of build and functions.
Developers and ICO founders flock to this standard because the execution protocols are ridiculously simple and can be set up in little to no time. It’s no wonder that the top tokens on the ethereum platform belong to this standard. It typically has six basic functions, which include:
- totalSupply() function –specifies the number of tokens to be created and made available for circulation.
- transfer() function –executes the initial token distribution to designated wallets (this function is why ICO tokens are usually ERC-20 tokens).
- transferFrom() function –ensures tokens can be transferred around and exchanged by users. This function works like a middleman that gets your wallet address, of the recipient, amount to be sent, and then does the transaction.
- balanceOf() function –tracks token balance in every wallet.
- approve() function –ensures the max token number is maintained as well as keeps track of which tokens are in which wallet. This is what prevents people from creating tokens out of thin air.
- allowance() function –ensures transaction validity so users can’t send more than they have. All transactions are double checked to make sure they’re valid before they are executed.
With these 6 functions, creating new tokens and developing platforms and wallets for them is exceedingly straightforward. This standard has already been employed by thousands of different projects. In fact, all of the projects in the Top 20 Ethereum Tokens are ERC-20 tokens.
ERC-223 Token Standard
This is an improvement on the ERC-20 token standard. Most people aren’t aware that the ERC-20 standard has a major flaw that causes all transfers sent to smart contracts in a manner similar to that used for wallets, to be lost.
This means that instead of the transaction registering as invalid, the tokens just disappear and become irretrievable. The ERC-223 standard is the answer to this problem. With this, transfers can be sent to either a smart contract or wallet using the same function.
As a result, this also eliminates the extra step needed by ERC-20 tokens, thus ensuring that transaction costs in gas are halved. Because they are improvement on the ERC-20 token standard, they are considered backwards compatible.
That means they are essentially the same as ERC-20s plus the added advantage of their current solution. This is why developers think it might soon supplant ERC-20s as the dominant ethereum based token standard.
This standard is not as popular though, because it hasn’t been used on any major crypto projects. Once it does, it will become popular among developers, and transform the way dApps are built on the Ethereum platform.
ERC-721 Token Standard
Next in line is the ERC-721 standard which is also relatively unknown. The standard only became somewhat known when CryptoKitties, a crypto based game, rose to fame last year.
This is different from the other tokens because of its ability to help developers create something called non-fungible tokens (NFTs). With this, token prices can vary greatly even if they are on the same platform.
Think of it as similar to buying Microsoft office package and Camtasia recording app. These two run on windows, but are priced differently. NFTs are great for tokenizing physical products like wines, art, properties and so much more.
Think of it as being capable of creating digital values of these things. Two of the most notable ERC-721 projects are the 0x protocol and 0xcert project. The latter is particularly effective at helping individuals create their own assets on the blockchain.
While this isn’t as popular, we wager that it will be soon, considering the fact that more physical assets will become tokenized in the near future.
ERC-777 And ERC-820 Token Standard
The ERC-777 is another improved version of the ERC-20, that’s just as backwards compatible as the ERC-223. The only difference is that it can handle way more transaction volume than the ERC-223.
Combined with the ERC-820 standard -which is essentially a central registry that makes it easy to examine smart contracts, thus lending some serious transparency- the ERC-777 token standard executes and verifies contract functions at an unprecedented level.
The ERC-777 can also be programmed to move tokens through the execution of smart contracts. Its highly customizable nature is its major appeal and the reason it will most likely enjoy unparalleled success in the near future.
For now however, there are no known projects on the ethereum platform using the ERC-777 and ERC-820 token standards. So, we’ll just have to wait and see how it performs when deployed on a popular project.
These token standards are just the beginning. As the platform evolves and more solutions are presented, we can expect to see even more tokens and improved versions of the ones currently available.