ERC-20 vs. ERC-721: Understanding the Ethereum Token Standards

• Like an ERC-20 token, an ERC-721 token cannot be divided.
• ERC-20 token is one of the most commonly used token standards in the crypto world.

What is the ERC-20 Token Standard?

Developed by Fabian Vogelstellar in 2015, the ERC-20 standard is a technical standard that is used to develop an Application Programming Interface (API) for fungible tokens within smart contracts. In simpler terms, the ERC-20 can be referred to as a set of rules for the Ethereum blockchain. 

It requires fresh tokens to be swapped, moved, and shared with crypto wallets by following a series of regulations. Since  ERC-20 describes the API of smart contracts rather than implementing them. This gives the functions that are referred to as code groups. 

This token standard allows developers to develop smart-contract-enabled tokens that are compatible with other products and services. An ERC-20 token represents ownership, an asset, a cryptocurrency, a right, and all other things that are unique and transferable.

There is a list of functions that a token must have to be ERC-20 compliant. This includes token supply, account balance, transfer, transfer from, approval, and allowance. However, it is mandatory to add the approval and transfer functions, while the token’s name, its symbol, and which decimals to use are optional.

What is the ERC-721 Token Standard?

First implemented by the popular game Cryptokitties in 2017, where the ERC-721 token represented the virtual kittens that the participants had to collect to progress into the game. 

Come to think of it, what’s the difference between an ERC-20 token and an ERC-721 token? Well, an ERC-20 token represents a specific type of asset, whereas an ERC-721 token represents a class of assets. In the case of Cryptokitties, the ERC-721 represents all the unique playable kittens and their owners. 

Compared to ERC-20, ERC-721 simplifies the ownership of an asset. Either an individual completely owns a particular asset or they don’t, there is nothing in between. In the instance of Cryptokitties, it is impossible to own a “half” kitten. Due to this, ERC-721 is largely referred to as the token standard for Non-Fungible assets. 

This is one of the major things to understand about the ERC-721 token standard, as other ERC standards are more or less the same as the ERC-20 standards.

Brief Differences Between ERC-20 and ERC-721

• The key difference between the two token standards is that ERC-20 is a fungible token and ERC-721 is a non-fungible token.
• ERC-20 tokens can be interchanged and represent a single entity, whereas ERC-721 tokens are neither interchangeable nor divisible. They represent a particular line of assets.
• The game Cryptokitties is an appropriate example of ERC-721. Here, the players get complete ownership of the cats, which are unique and cannot be exchanged with other players. The same is not possible in the case of ERC-20 tokens because they are fungible.
• As mentioned above, ERC-721 tokens are not divisible, whereas ERC-20 tokens can be divided and shared in parts with other players. In simpler terms, it is possible to share 1% of an ERC-20 token but not an ERC-721 token.

Conclusion:

ERC-20 and ERC-721 token standards can be arguably called the initiators of the digital age, which is both inclusive and efficient. With token standards evolving at an unparalleled pace, blockchain technology will certainly display revolutionizing changes.