Introduction:
Despite the vast number of cryptocurrencies in existence, it may come as a surprise that many follow a similar blueprint. This blueprint, known as token standards, outlines essential functionalities and properties for blockchain tokens.
Why Utilize Token Standards?
Interoperability:
Token standards ensure that tokens built under the same standard can seamlessly interact with existing platforms and applications, promoting compatibility across various projects. For example, ERC-20 assets can easily interface with other products and services developed using the same standard, enabling hassle-free trading and wallet usage.
Composability:
Token standards streamline the development process by allowing developers to reuse components, saving time on basic functionalities. This encourages experimentation and innovation by freeing up developers to focus on creating new products rather than starting from scratch.
Efficiency:
Token standards facilitate smart contract interaction by providing essential functions like address retrieval and token balances. Standards such as ERC-20 and BEP-20 enhance efficiency by enabling smart contracts to monitor tokens effectively. The Contract Application Binary Interface (ABI) can be utilized to inspect token transfers and other relevant data for ERC-20 tokens.
Common Token Standards in Crypto and DeFi:
BEP-20:
BEP-20, a token standard on the BNB Smart Chain (BSC), allows developers to create various tokens, including peggy coins, utility tokens, and stablecoins. It introduces features like blacklisting, minting, and pausing token burns. Key functions include TotalSupply, BalanceOf, Transfer, TransferFrom, Approve, and Allowance.
ERC-20:
Proposed by Fabian Vogelsteller in 2015, ERC-20 is a widely adopted token standard on the Ethereum blockchain. It serves as a foundation for developers to design fungible tokens with common rules and interchangeability. ERC-20 and BEP-20 share similar standards but operate on different blockchain networks.
ERC-721:
ERC-721 is a token standard for non-fungible tokens (NFTs) on Ethereum. NFTs, whether limited edition or Proof of Attendance Protocol (POAP), adhere to ERC-721 guidelines, requiring globally unique tokenId. Functions include token transfer, current balance, total supply, and uniqueness.
ERC-1155:
As a multi-token standard, ERC-1155 accommodates various digital assets, including utility tokens and NFTs. It offers functionalities like batch transfer, batch balance retrieval, batch approval, and NFT support for tokens with a supply of one.
Limitations of Token Standards:
While tokens adhering to the same standards exhibit compatibility, those with different standards may face incompatibility issues. This lack of uniformity can hinder communication and trading between tokens. Wrapped tokens, pegged to the value of another asset and created on a different blockchain, address this limitation.
Closing Thoughts:
Token standards serve as blueprints for designing and launching blockchain-based tokens. Although the industry faces compatibility challenges, solutions such as blockchain bridges and wrapped tokens offer innovative ways to mitigate these issues and enhance the overall functionality of cryptocurrencies.