Differences between ERC-20 and ERC-721

In 2015, when Ethereum came to life, it brought the world a whole new possibility of decentralization.

By building dapps and utilising smart contracts, it allows unbanked or under-banked individuals to get access to financial services like starting a savings account, taking out a loan, or trading their assets .

The ERC-20 standard

As the popularity of smart contracts rose, users began to create contracts which acted like tokens. When this got more prolific, keeping track of all the different standards of coding tokens using Ethereum smart contracts proved to be a hard task. These early Ethereum smart contract tokens did not contain the same sets of information in the same formats, and this made it more difficult for token ecosystems to interact and gain synergy from one another.

Hence the proposal of the ERC-20 Standard. ERC-20 was created by Fabian Vogelsteller in 2015. It allows the implementation of a standard API (Application Programming Interface) for tokens within smart contracts. It is a standard protocol on the Ethereum blockchain, which enables users to exchange tokens, transfer them or share them to a crypto wallet.

This standardization enabled programmers to design tokens around a shared set of rules, which made it easier to use them across the Ethereum blockchain.

The standardized content of an ERC-20 token includes:

  1. Token name
  2. Symbol
  3. Decimal (up to 18 places)
  4. totalSupply
  5. balanceOf
  6. transfer
  7. transferFrom
  8. approve
  9. Allowance

In an ERC-20 token, the first components, Token name, Symbol and Decimal can be optional. But the remaining 6 components are mandatory.

Components of an ERC-20 Token

Each of the components that make up the ERC-20 standard has a use case and purpose.

Token Name – Tells the user the name of the token. Eg: Ether, UniSwap, Dash

Symbol – The ticker symbol of the token. Eg: XRP, ETH, UNI

Decimal (Up to 18 places) – This determines how divisible the token is.

totalSupply – Indicates the total supply of the token

balanceOf – provides the account balance of the owner’s account

transfer – allows transfer of a certain number of tokens from the total supply to a user account

transferFrom – allows the transfer of tokens from one user to another user

approve – allows spender to withdraw a specific number of tokens from a specific account

allowance – returns a set number of tokens from a spender to the owner

ERC-721

ERC-721 tokens are commonly known as Non-Fungible Tokens or NFTs. The ERC-721 standard was created by William Entriken, Dieter Shirley and Nastassia Sachs. NFTs allow developers to tokenize ownership of any arbitrary data, or data in any format. This gave the idea of what can represented as a token on the blockchain.

Like the ERC-20 Standard, ERC-721 has its own set of standards as well. They address the following issues:

  • How is the ownership decided?
  • How are tokens created?
  • How are the tokens destroyed?
  • How are the tokens transferred?

The main difference between ERC-20 and ERC-721 is that ERC-20 tokens are fungible and divisible while ERC-721 tokens are non-fungible and indivisible.

This means that ERC-20 tokens represents a single asset and are interchangeable whereas ERC-721 tokens are not and represents an asset class.

One example is Axie Infinity. It’s a play-to-earn crypto game built on the Ethereum network. Players can earn the Axie Infinity Shard token (AXS) and Small Love Potion (SLP) by completing quests and battling other players.

Players can also breed Axies, the game characters, to get new unique Axies which are owned and managed through the use of ERC-721 tokens. As ERC-721 tokens, unique Axies can be bought and sold on the marketplace to other users.

Axies from Axie Infinity

Real world use cases for NFTs

NFTs are not just limited to use with digital collectibles and art pieces. There are use cases for NFTs to be linked with physical items as well.

One example is the use of blockchain technology to solve challenges in the logistics industry. Since the blockchain is immutable and transparent, this ensures that supply chain data is kept reliable, consistent, and authentic.

NFTs benefit this industry as they can represent unique physical items in our world. By assigning an NFT to a physical item, we can track the product’s meta-data on its production, transportation, and sale.

Take for example, a limited-edition handbag that is made in Italy. We can assign an NFT to the bag that, when scanned, will reveal timestamps of the metadata on where and when this bag was made is created.

As the handbag travels and moves through the supply chain, new timestamps are added into the metadata at each stage of the process.

When the handbag arrives at the retail store, it will be timestamped as received. The exact history of the handbag will be available to view and confirm its authenticity and transportation journey.

While NFT use cases for are limited in real-world applications, their value in managing art pieces and collectibles has earned it a foothold in the industry.


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