What is Ethereum Token? - A Step-by-Step Guide For Beginners
What is Ethereum Token?- A Step-by-Step Guide For Beginners - This beginner’s guide should help to understand What is Ethereum token & how they are different than Ethereum?
Are you an entrepreneur planning to issue Ethereum-based tokens? You might be looking around to find what ERC standards mean and how they important to you. This beginner’s guide should help to understand What is Ethereum token & how they are different than Ethereum?
Before that just clarify yourself What is Cryptocurrency Coin & Token?
Here we explained in simple words – Coins vs Tokens!
Coins are stand-alone cryptocurrencies based on their own blockchain. Tokens are built and hosted on existing or another blockchains.
Coin basically refers to cryptocurrency that has its own blockchain and works separately of other platforms at the same time token refers to cryptocurrency that operates and based its existence on another platform for example Ethereum.
Hope you will get some major difference between about coins & Tokens!
Let's come to our topic here - What are Ethereum-based Tokens & Standard Types?
Here you may know the basic concepts of Ethereum and how Ethereum works?
Ethereum can actually make it simpler to cryptocurrencies in general. Yes, Ethereum is a decentralized platform upon which smart contracts can be programmed and executed. It is the first base that supports millions of decentralized applications (dApps).
Whenever a new application for blockchain technology and smart contracts is developed on top of Ethereum, a new Ethereum- based token can be created. The clarity aspect of this process is that Ethereum has set standards for tokenization. Various types of decentralized applications will be tokenized according to different standards, build upon on what the application is meant to do.
As a result of these standards, it is much more forthright for smart contracts and tokens to interact and, therefore, for developers to create dapps on Ethereum.
What are ERC standards?
An Ethereum Request for Comments (ERC) - It is a standard document that smart contract programmers using the Ethereum blockchain platform to write. They explain the rules in these documents that Ethereum-based tokens must obey.
The Ethereum platform uses a process called the ‘Ethereum Improvement Proposal’ to review these documents. They comment on it and as a result of that, the ethereum token developer that built the document may review it.
The Ethereum platform accepts some of these documents after working through the 'Ethereum Improvement Proposal' process, finalizes it, and then etherum developers implement it.
The most common standard for Ethereum tokens is currently the ERC-20 standard, but there are also ERC-223, ERC-721, and ERC-777 standards. Here, we will explain each standard and how it is being used in the decentralized platform.
While there are many standards like:
- ERC 20
- ERC 165
- ERC 721
- ERC 223
- ERC 621
- ERC 777
- ERC 827
- ERC 884
- ERC 865
If you know about Ethereum, you might have heard about “ERC20.” It is nearly related to the ICOs that keeps happening overall the year.
Startups, especially are taking advantage of the ERC20 token. Many startups are also successful in raising millions of dollars through the token sale.
ERC20 is a software or code. It is a standard protocol just like HTTP. It regulates the tokenization and ensures that the technical specification of the tokens is meet. If a token doesn’t meet regularity, it won’t be called ERC20 token. If it does, it can be termed as “ERC20 token.”
All the tokens that are created don’t need to have their own blockchain. They can grow on the Ethereum blockchain, and this is what makes ERC20 so promising and useful.
Benefits of ERC20 Standards:
There are more benefits to ERC20 standards. It makes it possible for developers to develop DApps on the Ethereum blockchain. It also helps establish the whole standardized process.
The list of benefits are:
- Token implementation and execution become easy for developers.
- There is a standard protocol to maintain and follow.
- ERC20 tokens offer high liquidity.
- Smart-contracts ensure that transactions are risk-free.
2. ERC 165
It’s important for another token standard, ERC 721, which can’t be implemented without it. More on ERC 721 later.
A smart contract needs to interact with crypto-tokens. While all contracts can interact with ERC20 tokens, it’s different for other ERC standards for tokens, like ERC721. Smart contracts need to implement unique interfaces to interact with tokens following other standards.
Now, the Ethereum development platform needs to know which type of interfaces a smart contract implements, and there is a need to publish this information. This is because they need to know in which ways they can interact with that contract.
There wasn’t a standard method to detect interfaces that a smart contract uses, and to publish it. ERC 165 standardizes a method for this, besides standardizing the identification of interfaces.
3. ERC 721 – the standard for non-fungible tokens
The ERC-721 token is other ERC standards is that ERC-721 enables ethereum token developers to easily create non-fungible tokens (NFTs). In other words, one token can be worth multiple values than another token that’s being exchanged within the same platform/ecosystem.
"Non-fungible tokens are highly useful because they enable the tokenization of unique individual assets"
- Are non-fungible tokens (NFTs)
- Can be used to tokenize unique individual assets
- First used by the Ethereum dapp CryptoKitties, but have many possible applications beyond digital gaming
4. ERC 223
If you send ERC20 tokens to smart contracts that can’t manage tokens, this action burns the tokens, and you can’t recover them. ERC223 standard to prevent this action.
Ethereum token Developers either can accept or decline tokens arriving at their smart contract addresses. It specifies functionality that a smart contract can code so that if it can’t accept the token, the transfer will fail. This doesn’t burn any token.
While ERC223 intends to save wealth lost accidentally, it’s not yet implemented. No tokens use it, and crypto exchanges may not be prepared for this standard. Also, Ethereums’ move to implement ENS (Ethereum Name Service) & it will make such transactions very rare.
5. ERC 621
A development to ERC20, this standard is to increase or decrease total token supply using two functions, like.
- Increase Supply
- Decrease Supply
The proposal recommends that only the contract owner or trusted users should use them.
Cryptocurrencies are digital money, unlike fiat currencies where central banks can increase or decrease the whole supply. Total token supply is one among many factors determining token appreciation the economics of a token.
6. ERC 777
ERC 777 is a proposed standard that includes functionality to identify receipt of tokens and start a smart contract instantly after the first transaction. While lowering the transaction overhead, it allows a user to reject incoming tokens from a blacklisted address. Blacklisting of an address can be for multiple reasons such as hacking or illegal activities. An ability to decline payment from such an address improves security position of an Ethereum DApp.
7. ERC 827
It’s another standard of ERC 20, however, it intends to resolve the problem that ERC223 tries to solve, in an enhanced manner. If this standard is implemented, a token holder can transfer token while also approving a 3rd party to spend it.
8. ERC 865
As a user new to crypto, when you try to transfer Ethereum-based token, you suddenly find that you need to pay miner fees & additional charges in Ether platform. It increases irritation for you.
Among ERC token developers in the Ethereum community has proposed, ERC 865 intends to make it easy for new crypto users. It requests using the token to pay the miner fees as well as. So it's also one type of this standard and implemented in ethereum blockchain.
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