We have been buying and selling many different types of tokens on both centralized exchanges (CEX) as well as decentralized exchanges (DEX), but not everyone knows that those tokens can be build to the same standards. So what is the token standard? Join Weakhand to find the most popular token standards in this article.
What is the Token Standard?
Token Standards are a standard used in blockchain technology to ensure uniformity, compatibility and safety between different applications. It regulates how tokens are created, managed and used in blockchain systems, including format requirements, transmission protocols and transaction processing mechanisms.
In general, the fact that tokens in a blockchain use the same standard will help transaction and exchange activities take place more smoothly, but this can also be a barrier for blockchains to interfere with each other.
The Importance of Token Standards
Consistency and compatibility
Token standards ensure consistency and compatibility between different applications on the same blockchain platform. It makes it possible for different applications to communicate and use tokens without having to perform a conversion process.
Easy to trade and use tokens
Tokens issued to the same standard can be easily traded and used on decentralized exchanges (DEX) without having to perform a conversion process. This reduces the liquidity fragmentation of token pairs, thereby helping users experience less price slippage when trading on DEX platforms.
Avoid errors arising
Using Token standards helps ensure that applications are developed that meet standardized rules while also avoiding errors that arise due to differences in connectivity and interactions between dApps.
This is still a matter of concern as cross chain bridges are trying to combine many different token standards to transfer assets between blockchains, thereby creating many security holes that hackers can easily exploit.
Common Standards
ERC-20 standard
The ERC-20 token standard is a standard for tokens on the Ethereum blockchain. ERC-20 stands for Ethereum Request for Comment 20, it was launched by Fabian Vogelsteller in November 2015. This standard defines the rules for how tokens on the Ethereum blockchain should operate, such as transferability exchange tokens, provide information about the number of tokens available and the ability to transfer tokens to other users.
ERC-20 has become the standard for most tokens on the Ethereum blockchain, making an important contribution to the relative flexibility of dApps built in the Ethereum ecosystem. With ERC-20, developers do not need to create rules for their tokens from scratch; instead, they can use an existing standard and integrate it into their source code.
Some important features of the ERC-20 token standard include:
- The total supply of tokens (Total Supply) is predetermined and cannot be changed once issued.
- The tokens can be traded through Ethereum’s standard decentralized exchanges.
- Third parties such as wallets and nodes do not need to know about a specific token to interact with it, increasing compatibility and flexibility.
- Each ERC-20 token must implement certain standard functions, allowing different nodes to collect information about the number of tokens available and support queries.
Not only limited to Ethereum, the ERC-20 standard can also be on Layer 2s such as Arbitrum and Optimism or Sidechains such as Polygon POS and Ronin Network.
ERC-721 standard
The ERC-721 token standard is a common standard that allows the creation of smart contracts on the Ethereum platform to issue NFTs (non-fungible tokens).
ERC-721 tokens are used as non-fungible and unique digital assets. What makes ERC-721 tokens unique on Ethereum is that each token will have a certain ID and it cannot be changed from the moment of issuance.
ERC-1155 standard
ERC-1155 is a standard on Ethereum used to create tokens similar to ERC-20 and ERC-721 but can represent a variety of assets including fungible or non-fungible assets. replace. This creates richer applications especially in Gamefi, Metaverse projects including the issuance of tokens capable of containing various features such as in-game digital assets and their limited editions.
BEP-20 standard
BEP-20 is a token issuance standard of the BNB Chain network that defines the conventions for popular ERC-20 tokens on the Ethereum network that are developed for use on the Binance Smart Chain network.
BEP-20 tokens use the same exchange address and wallet as ETH and ERC-20 tokens. They are identified by information such as the token’s name, symbol, maximum quantity and symbol, stored in the smart contract.
Similar to the ERC-20 standard, the BEP-20 standard also requires tokens to comply with regulations and restrictions governing token supply, transfer, use, and storage.
Limitations of Token Standards
Normally, tokens that use the same standard will be able to interact very well with each other, but this is very difficult for tokens with different standards. Different token standards can be divided into two categories as follows:
- Different standards in the same blockchain, the most typical example is that ERC-20 and ERC-721, although released on Ethereum, cannot interact with each other in the usual way.
- Different from the standards of blockchains, there are a number of ways to solve this problem such as wrapping tokens, but security issues also start to arise from here when hacks related to these protocols cause problems. causing huge damage.
Summary
Above is what everyone needs to know to understand what token standards are as well as popular token standards today. Weakhand hopes that through this article, everyone will be able to find useful information for the crypto market research process.
