Comparing Ethereum Token Standards: ERC20 vs ERC721

Ethereum has emerged as one of the most popular blockchain platforms for issuing digital tokens and assets. Two of the most widely used token standards on Ethereum are ERC20 and ERC721, which have distinct use cases and functionalities. This article will compare ERC20 and ERC721 tokens and highlight their key differences and applications.

What are ERC20 Tokens?

ERC20 is a technical standard used for implementing tokens on the Ethereum blockchain. ERC stands for Ethereum Request for Comment, and 20 is the proposal identifier. This standard provides a set of rules and procedures for creating fungible tokens that are interchangeable with one another.

Some key characteristics of ERC20 tokens include:

• Fungibility - Each unit of an ERC20 token is exactly equal or interchangeable. For example, one ETH is equal to another ETH.
• Uniform functions - ERC20 tokens have mandatory and optional standard functions like totalSupply(), balanceOf(), transfer(), approve() etc. This allows them to seamlessly interact with exchanges, wallets and smart contracts.
• Compliant with wallets and exchanges - Being ERC20 compliant allows the tokens to be easily listed, stored and traded on wallets and exchanges.
• Used for utility tokens - Most utility tokens that act as an internal currency are created as ERC20 tokens. These include tokens like Binance Coin, Chainlink, Polygon etc.

What are ERC721 Tokens?

While ERC20 tokens are fungible, ERC721 tokens are non-fungible. Each ERC721 token is unique and not interchangeable. Think of them as collectibles like CryptoKitties rather than a currency.

Some key characteristics of ERC721 tokens are:

• Non-fungibility - Each token is distinct and cannot be replaced by another identical one. They usually have distinguishing attributes.
• Ownership and transfer - ERC721 tokens have a tracker for token ownership and transfer functions to securely trade tokens between accounts.
• Metadata - They can have metadata attached to store attributes like name, description, image etc.
• Used for NFTs - ERC721 is the most popular standard for creating non-fungible tokens (NFTs) like crypto collectibles, digital art, games assets etc.

Key Differences Between ERC20 and ERC721

Now that we have understood what ERC20 and ERC721 tokens are, let’s explore some of the major differences between these two standards:

• Fungibility - ERC20 tokens are fungible while ERC721 tokens are non-fungible and unique.
• Functionality - ERC20 has basic functions like transfer and balance checks. ERC721 supports additional features like owner tracking and metadata storage.
• Supply - ERC20 tokens have a dynamic supply that can vary. ERC721 tokens often have limited supply since they are collectibles.
• Divisibility - ERC20 tokens can be divided into smaller denominations. ERC721 tokens are indivisible.
• Applications - ERC20 is used for currencies, utility tokens, stablecoins etc. ERC721 is used for NFTs like art, games, metaverse assets etc.
• Valuation - ERC20 tokens have market determined value based on supply and demand. ERC721 tokens can have subjective value apart from market value.

While both these standards are used for issuing tokens on Ethereum, ERC20 and ERC721 cater to completely different requirements. Understanding these differences allows developers to select the right standard for their token needs.

"As blockchain architects, we need to move beyond the hype and understand the core concepts that power different token standards. Evaluating use cases to match them with the right standard is crucial for adoption."

Some key benefits of ERC token standards:

• Interoperability
• Predictable behavior
• Security
• Integration with infrastructure
• Developer adoption

Here is an example of a short bulleted list within the article:

Benefits of ERC20 tokens:

• Fungibility
• Exchange listing potential
• Liquidity for transfers
• Uniform interactions

Benefits of ERC721 tokens:

• Proof of ownership
• Digital scarcity
• Unique metadata
• Value from collectability
• Transferability

While both ERC20 and ERC721 have their own advantages, selecting the appropriate standard based on the token utility and use case is important.

How Do ERC20 and ERC721 Token Contracts Differ in their Programming?

ERC20 and ERC721 standards have some similarities and differences in how their smart contracts are programmed:

• ERC20 contracts track fungible token balances and transfers between accounts. ERC721 contracts track ownership and transfers of non-fungible tokens.
• ERC20 has functions like totalSupply() and balanceOf(). ERC721 has ownerOf() and tokenOfOwnerByIndex().
• ERC20 uses transfer() which allows sending tokens. ERC721 uses safeTransferFrom() for securely transferring token ownership.
• ERC20 contracts handle the overall token supply. ERC721 mints non-fungible tokens and destroys them if required.
• ERC20 contracts use mapping to store account balances. ERC721 uses mapping to store information about token owner.
• ERC20 transfers tokens by value. ERC721 transfers tokens by reference.
• ERC20 developers need to handle decimals precision. ERC721 developers work with indivisible unique tokens.

The core logic differs based on managing fungible vs. non-fungible tokens. But both leverage Solidity and benefit from Ethereum's security for creating digital assets.

Conclusion

ERC20 and ERC721 are two widely adopted token standards on Ethereum, catering to different requirements. While ERC20 is ideal for fungible tokens like utility tokens and stablecoins, ERC721 fits the use case of non-fungible tokens like NFTs perfectly.

Understanding the contrasts between ERC20 and ERC721 allows developers to make informed choices when creating tokenized projects. Leveraging these standards results in interoperable tokens that can integrate smoothly within the existing Ethereum ecosystem.

As blockchain adoption grows, we will continue seeing innovative applications of both ERC20 and ERC721 tokens across various sectors like finance, gaming, digital collectibles, and more.