Tokens are the lifeblood of blockchain technology, and every token is powered by a smart contract with standards that allow it to execute specific uses. Some of these smart contract standards are simply improvements on existing ones, but others let tokens execute completely new operations. The latter allows blockchain networks to have brand-new, decentralized applications.
Two common token standards that every blockchain developer should know are the ERC-721 and ERC-827 standards. Why are their standards important to crypto, and what’s the difference between their token features? Read this basic guide to find out!
What Is A Token?
A token is a programmable unit that represents a certain value found on a blockchain network. These values can also have their transaction history listed in digital ledgers.
Standard tokens represent ownership of digital assets, and these are tradable between token holders. Utility tokens, on the other hand, represent their current owner’s stake in a decentralized autonomous organization (DAO) or a company. Utility tokens can be used to grant permissions, act as currency, or hold value.
Note that some users talk about coins and tokens interchangeably. While they’re both digital assets, there are key differences in how they operate. A coin operates on a blockchain as a replica of real-life money. However, a token holds an asset and acts as proof of ownership.
What’s The Difference Between Token Standards And Smart Contracts?
While token standards rely on smart contract development and functionality, they serve vastly different purposes on the blockchain. A smart contract implements all the technical know-how, while token standards are more like an interface for a token.
Here’s a real-life example to better illustrate their differences:
Imagine you’re about to buy the latest smartphone from a salesperson. You’d ask the salesperson about a phone’s availability and its specifications, but you wouldn’t ask them to make the smartphone itself.
In this scenario, token standards are the salespeople or middlemen that make the transaction possible. Smart contracts, on the other hand, are more like the smartphone manufacturer itself responsible for the device’s functionality and features.
ERCs need both smart contracts and token standards to function on blockchain networks.
What Are ERC Token Standards?
The acronym “ERC” stands for “Ethereum Request for Comment”. This term represents the various conventions and standards operating within the Ethereum ecosystem. “Token standards” are a set of commands that Ethereum-based tokens need to follow.
Typically, token standards will have implementation rules so smart contract programmers can understand how the standards will work on a blockchain platform. Smart contract standards need these to function predictably, so knowing how these rulesets interact with other applications is a must.
Here are some of the most common ERC token standards and their typical uses:
- ERC-20: The ERC-20 token is the most widespread token standard for cryptocurrency.
- ERC-223: This token standard was created to improve a bug in ERC-20 token transactions where tokens would get stuck during a transfer.
- ERC-1155: This gaming token standard can be used to manage both fungible and non-fungible token transactions.
- ERC-865: This token standard allows token holders to pay for a token transfer in tokens instead of gas, bundling them into a single transaction process.
What Is The ERC-721 Token Standard?
This standard is made up of several protocols that define non-fungible tokens a.k.a. NFTs. If you’ve ever collected physical assets like trading cards and stuffed toys, you’ll understand the purpose of the ERC-721 token standard. While many people do collect these items for their personal preferences, others collect them because of their rarity and value.
Rarity and value, however, are harder to protect with a digital asset. The ERC-721 token standard provides that added protection and uniqueness. Because each NFT is unique, this means you can’t simply make a copy of an existing ERC-721-based NFT and trade it with a different one. It’s not possible because each NFT has different definitions and parameters thanks to this token.
Initially, ERC-721 tokens were called “deeds” by community developers. This is because they wanted to signify that ownership of a token included ownership of all rights related to it, as well as proof of ownership itself. But “deeds” felt too closely related to real estate, so usage of this term was scrapped. Developers started referring to the above-mentioned tokens as NFTs to refer to their main function and potential future use, and it’s stuck since.
How Does The ERC-721 Token Work?
The ERC-721 token turns virtual assets into NFTs on the Ethereum blockchain exchange platform. By adding another layer of metadata to the token’s existing information, it identifies the NFT’s rarity and value.
Its ownership functions establish attribution to the creator, the owner, and any other future buyers. These functions allow decentralized applications to acquire, manage, and transfer more tokens with increased security. Its special “tokenOfOwnerByIndex” function allows it to easily retrieve NFT IDs on the blockchain, making it simpler for users to get information about each unique NFT.
Advantages And Uses Of The ERC-721 Standard
Because its main feature is adding non-fungibility, the ERC-721 standard is widely used across multiple blockchains. Notable NFT projects which use this standard include the Bored Ape Yacht Club, Decentraland, and CryptoPunks. While some rely solely on this standard, other projects have added more protocols for more functionality.
It’s been suggested by the blockchain development community that NFTs won’t be the only use of this standard for long. Other potential uses for this standard include physical art exchanges, land management, and even real estate on the public blockchain network.
What Is The ERC-827 Token Standard?
The ERC-827 token standard was developed as an improvement on the ERC20 token standard. Millions of dollars had been lost in ERC-20 transactions because tokens would sometimes get stuck in a transfer. These tokens would be irretrievable and could no longer be reused for other transactions.
Thanks to this standard, holders had confidence that their cryptocurrency-backed stablecoins would have their transfers push through with no loss of tokens. Additionally, this standard contains data both about the coin and its value, so it provides better security for blockchain wallets.
How Does The ERC-827 Token Work?
The ERC-827 token standard uses a recipient contract mechanism. This mechanism allows a receiver contract that uses these functions: “approveAndCall”, ”transferAndCall”, and “transferFromAndCall”. Combined, these functions check that the balance being transferred is correct, and only allow receiver contracts to use the approved balance.
In the event of an invalid contract, this standard is set to revert the balance back instead of forcing it to push through. This prevents tokens from being burned and permanently lost. It also has an extra data parameter with an improved transaction log that permits third-party programs to spend currency. It does all of this in less than 20 lines of code while retaining the full functions of the ERC-20.
Advantages And Uses Of The ERC-827 Standard
While the ERC-827 is best known for how it improves on ERC-20 token development, one of its biggest advantages is its considerable flexibility. Because these standards allow the sending of metadata alongside digital certificates, the recipient contract can execute a long list of functions. These functions can handle a whole host of issues, reducing the need for troubleshooting and making it one of the most reliable for Ethereum token development.
Because it was created to address ERC-20 issues, it’s also a snap to integrate into existing smart contract applications and activities. The seamless integration means developers don’t need to make big adjustments to make use of this standard’s advantages.
Much of its potential has yet to be explored, even by the most skilled developers. While this means that it will have greater utility for blockchain-based projects, it also means that developers will have to adjust their code as more uses are uncovered.
Major Differences Between ERC-721 vs ERC-827
The greatest difference between ERC-721 and ERC-827 is their primary use. These two tokens have two wildly different purposes. While the ERC-827 token standards are a patch for ERC-20’s basic functionality, ERC-721 indicates a digital asset’s uniqueness and value.
These two functions barely have any similarity to them. ERC-721 has multiple protocols that link users’ metadata or actual data. ERC-827’s potential, on the other hand, has yet to be explored despite its potential for custom development.
Over time, perhaps ERC-827 may have greater functionality than ERC-721 on the Ethereum network. But until developers or external contributors actually start tinkering with the protocols, this remains to be seen.
Similarities Between ERC-721 And ERC-827
There are very few similarities between these two token standards. ERC-827 token standards add protocols that create the base difference between fungible versus non-fungible tokens: an added layer of rarity. Non-fungible tokens are, simply put, not interchangeable with each other. This property and ownership of these unique digital assets is protected by ERC-827 standards.
ERC-721 standards, on the other hand, have little known functionality for the layman beyond fixing an ERC-20 transaction bug. However, decentralized organizations and blockchain developers alike are interested in the potential of its transfer protocols and their other uses. In the long run, ERC-721 may have even greater and better functionality than ERC-827 standards.
The ERC-721 standard allows digital assets to be turned into unique NFTs, identifying both the NFT’s value and rarity. Meanwhile, the ERC-827 standard is an improvement on the popular ERC-20 standard that protects crypto tokens from getting stuck during otherwise valid transactions.
Both are popular standards but have wildly different functions. Choosing the right token standard can help dedicated blockchain developers avoid constant troubleshooting for blockchain projects.
If you need a helping hand developing your blockchain app, check out Tokenfy! We’ll walk you through the different protocols to get your project off the ground.