What are token standards? Explained for Ethereum, BNB, Tron, Polkadot

Token standards are predefined sets of rules and protocols that dictate how a specific type of token should function on a blockchain. They ensure consistency and compatibility, enabling developers to create and deploy tokens with known behaviors and functionalities.

Token standards not only provide a blueprint for token creation but also facilitate seamless interactions between different tokens and platforms within the same blockchain ecosystem.

Understanding Token Standards: A Foundation

Definition of Token Standards

Token standards, in essence, are a set of predefined rules, specifications, and protocols that outline how a particular type of token should be created, managed, and interacted with on a blockchain platform. These standards ensure that tokens conform to a consistent structure, behavior, and interface, regardless of who creates or interacts with them.

By adhering to a token standard, developers, and users can anticipate the token's behavior, making it easier to build applications and integrate tokens into various services.

Consider token standards as the architectural blueprints for creating tokens on a blockchain. Just as a construction project follows building codes and regulations to ensure safety and functionality, token standards provide a framework that ensures tokens operate securely and seamlessly within the blockchain ecosystem.

Ethereum Token Standards

As one of the pioneering blockchain platforms, Ethereum has introduced several groundbreaking token standards that have become integral to the cryptocurrency ecosystem.

The three key Ethereum token standards: ERC-20, ERC-721, and ERC-1155.

ERC-20: The Ubiquitous Standard for Fungible Tokens

The ERC-20 token standard, introduced by Fabian Vogelsteller and Vitalik Buterin in 2015, has become the cornerstone for creating fungible tokens on the Ethereum blockchain.

Fungible tokens are interchangeable and indistinguishable from one another.

The ERC-20 standard defines a set of functions that a token contract must implement, including the ability to transfer tokens, check balances, and approve spending allowances.

Use Cases and Examples

ERC-20 tokens have found extensive use in various industries. They serve as utility tokens for dApps, enable tokenized representations of real-world assets, and facilitate initial coin offerings (ICOs) and token sales.

Prominent examples of ERC-20 tokens include Tether (USDT), Chainlink (LINK), and Uniswap (UNI). The standardized nature of ERC-20 tokens has contributed to their widespread adoption and compatibility across different platforms.

ERC-721: Non-Fungible Tokens (NFTs) and Their Uniqueness

In contrast to ERC-20 tokens, ERC-721 tokens are unique and indivisible. Each token represents a distinct item or asset, making them ideal for creating non-fungible tokens (NFTs).

The ERC-721 standard defines functions for token ownership, transfer, and metadata retrieval. Each ERC-721 token has a specific identifier (token ID), allowing for precise tracking and ownership verification.

Use Cases and Examples

ERC-721 tokens have catalyzed a revolution in digital ownership and provenance. NFTs have gained immense popularity in digital art, enabling artists to tokenize their creations and sell them as unique digital assets.

NFTs also have applications in gaming, where they represent in-game items, characters, and land. Moreover, NFTs have found a niche in collectibles, allowing enthusiasts to own and trade digital collectible items.

ERC-1155: A Versatile Multi-Token Standard

The ERC-1155 standard, proposed by Witek Radomski, introduces a novel approach by allowing a single contract to manage both fungible and non-fungible tokens.

This flexibility reduces gas costs and simplifies token management, as a single contract can house various token types.

ERC-1155 tokens provide significant advantages for developers and users alike. Developers can optimize efficiency by managing multiple token types within a single contract, reducing deployment and maintenance complexity.

Users benefit from reduced transaction costs when interacting with ERC-1155 contracts, as each interaction involves fewer on-chain operations.

Additional Ethereum Token Standards

Besides the three key Ethereum token standards, there are several more currently in development or in experimental phases.

Here are a few of the promising Ethereum Token Standard:

ERC-6551

This standard expands the capabilities of ERC-721 NFTs by enabling their smart contract accounts. This means that NFTs can now interact with other smart contracts, which opens up a number of new possibilities for their use cases.

For example, NFTs could be used to represent in-game assets that can be used to interact with other games or applications.

ERC-1659

This standard is designed to improve the efficiency of token transfers by batching multiple transfers together. This can save gas fees and make token transfers more scalable.

This is especially beneficial for large-scale token transfers, such as those that occur during an initial DEX offering (IDO).

ERC-4626

This standard is designed for tokenized vaults, which are a type of DeFi product that allows users to deposit their tokens and earn interest.

ERC-4626 standardizes the way that tokenized vaults are created and managed, which makes them more interoperable and secure. This is important for the growth of the DeFi ecosystem, as it makes it easier for users to participate in DeFi products.

ERC-1767

This standard is designed to improve the security of token contracts by requiring them to be audited before they are deployed. This helps to prevent the creation of malicious or buggy token contracts. This is important for the overall health of the Ethereum ecosystem, as it helps to protect users from scams and hacks.

ERC-2771

This standard is designed to improve the privacy of token transactions by allowing users to hide their identities. This can be useful for users who want to protect their privacy or who are transacting in a sensitive industry.

This is important for the growth of the DeFi ecosystem, as it allows users to participate in DeFi products without having to worry about their privacy being compromised.

Bitcoin and Token Standards

While Bitcoin is primarily known as a store of value and a cryptocurrency, it has also paved the way for the creation of token standards and tokenized assets on its blockchain.

So far there has been some work in a few notable approaches to make Bitcoin more accessible as a DeFi asset. Most notable of them are the BRC-20 tokens, the Omni Layer protocol, and the RSK platform.

BRC-20 Token Standard

BRC-20 is an experimental token standard that is designed to create fungible tokens on the Bitcoin blockchain.

It is based on the ERC-20 standard for Ethereum, which means that BRC-20 tokens are compatible with wallets and applications that support ERC-20 tokens.

BRC-20 tokens are created using the Ordinals protocol, which is a way of storing data on the Bitcoin blockchain.

The Ordinals protocol uses a technique called ordinal inscriptions to store data in the form of numbers. This allows BRC-20 tokens to be created without the need for smart contracts, which makes them more secure and efficient.

BRC-20 tokens are still in their early stages of development, but they have the potential to be a valuable tool for developers who want to create tokens on the Bitcoin blockchain.

BRC-20 tokens are more secure and efficient than other token standards on Bitcoin, and they are also compatible with Ethereum wallets and applications.

Here are some of the key features of BRC-20 tokens:

Fungible: BRC-20 tokens are fungible, which means that they are interchangeable with each other. This makes them ideal for use as a medium of exchange or a store of value.
Secure: BRC-20 tokens are secured by the Bitcoin blockchain, which is one of the most secure blockchains in the world.
Efficient: BRC-20 tokens are more efficient than other token standards on Bitcoin, as they do not require the use of smart contracts.
Compatible: BRC-20 tokens are compatible with Ethereum wallets and applications, which makes them more accessible to developers and users.

Omni layer and Rootstock

The Omni Layer and Rootstock (RSK) are two different platforms that are built on top of the Bitcoin blockchain. They both allow developers to create and deploy decentralized applications (dApps), but they have different approaches to doing so.

The Omni Layer is a protocol that allows developers to create custom tokens on the Bitcoin blockchain. These tokens can be used to represent anything from fiat currencies to virtual goods.

The Omni Layer also supports the creation of decentralized exchanges (DEXs), which allow users to trade tokens without the need for a central authority.

RSK is a sidechain that is also built on top of the Bitcoin blockchain. Sidechains are essentially parallel blockchains that are connected to the main Bitcoin blockchain.

This allows RSK to inherit the security and stability of the Bitcoin blockchain, while also providing additional features such as smart contracts.

Tron Token Standards

Tron, a blockchain platform known for its focus on decentralized entertainment and content-sharing, has also introduced its own set of token standards.

The TRON network has two token standards:

TRC-10 Token Standard

This is the original token standard on the TRON network. It is a simple standard that does not have any smart contract functionality. TRC-10 tokens are created by sending a transaction to the TRON blockchain with the required information.

TRC-20 Token Standard

This is a more advanced token standard that is based on the ERC-20 standard for Ethereum. TRC-20 tokens have smart contract functionality, which allows them to be used for a wider range of applications.

TRC-20 tokens are created by deploying a smart contract on the TRON blockchain.

Token Standards in Other Blockchains

The world of blockchain is a dynamic and rapidly evolving landscape, characterized by innovation and diversity. Beyond Ethereum and Tron, several other prominent blockchain platforms have introduced their own token standards, each tailored to their unique architectures and goals.

BNBChain and BEP-20 Tokens

BNBChain, an Ethereum-compatible blockchain developed by Binance, has gained significant traction as a high-performance and cost-effective alternative. Within the BNB ecosystem, the BEP-20 token standard takes center stage.

BEP-20 tokens are akin to Ethereum's ERC-20 tokens, enabling seamless integration with BNBChain and its decentralized applications. These tokens have gained popularity for their compatibility with existing Ethereum tools, making it relatively straightforward for developers to deploy tokens and build applications.

BEP-20 tokens have found diverse applications, from serving as utility tokens in DeFi platforms to powering NFT marketplaces.

Cardano (ADA) and Native Token Standards

Cardano, a third-generation blockchain platform, stands out for its emphasis on scalability, sustainability, and academic rigor. Unlike Ethereum, which initially relied on smart contracts for token creation, Cardano introduced native token standards as an inherent feature of its blockchain protocol.

Cardano's native tokens are natively supported by the blockchain, enabling users to create and exchange tokens directly on the platform. This approach reduces the complexity associated with using smart contracts solely for token creation.

Native tokens have the potential to enhance the efficiency and cost-effectiveness of token creation and management within the Cardano ecosystem, opening the door to a wide array of use cases.

Polkadot (DOT) and Cross-Chain Token Standards

Polkadot, conceived as a multi-chain blockchain platform, places a strong emphasis on interoperability between different blockchains. While Polkadot itself does not have a single token standard, its architecture enables the creation of various specialized para chains (parallel chains) that can support custom token standards.

Parachains in the Polkadot network can implement their own token standards tailored to their specific use cases and requirements.

This decentralized approach allows developers to design token standards that best suit their projects, promoting innovation while maintaining the potential for cross-chain interoperability within the broader Polkadot ecosystem.