Blockchain technology has revolutionized the way digital assets are created, managed, and exchanged. While cryptocurrencies like Bitcoin and Ethereum's native coin, Ether (ETH), serve as foundational assets, tokens built on top of existing blockchains unlock a broader range of applications—from decentralized finance to digital collectibles. This article explores the concept of Ethereum tokens, the process of tokenization, and the key token standards such as ERC-20, ERC-721, and ERC-1155 that define how these tokens function within the Ethereum ecosystem.
Whether you're a developer, investor, or simply curious about blockchain innovation, understanding these standards is crucial for navigating the evolving world of decentralized applications (dApps).
What Are Tokens?
Tokens, often referred to as crypto tokens, are digital assets built on existing blockchain networks rather than operating on their own independent blockchains. Unlike native cryptocurrencies such as ETH, which power the Ethereum network, tokens are created by projects and applications that leverage the security and infrastructure of an established blockchain.
For example:
- LINK (Chainlink) enables smart contracts to interact with real-world data.
- COMP (Compound) governs a decentralized lending protocol.
- DAI is a stablecoin pegged to the US dollar, issued by MakerDAO.
These tokens represent various forms of value—utility, governance rights, or even ownership in digital or physical assets—and are essential components of the decentralized economy.
👉 Discover how token standards power next-generation blockchain applications.
Understanding Tokenization
Tokenization is the process of converting rights to an asset—digital or physical—into a digital token on a blockchain. This transformation enables fractional ownership, improved liquidity, and enhanced security.
For instance:
- A real estate property can be divided into tokens, allowing multiple investors to own shares.
- Sensitive financial data can be tokenized for secure transactions without exposing actual information.
In blockchain contexts, tokenization goes beyond data protection—it unlocks new economic models by making traditionally illiquid assets tradable and accessible.
What Is ERC in Ethereum?
ERC stands for Ethereum Request for Comments, a formal process used to propose improvements, define standards, and introduce new features to the Ethereum network. These documents are reviewed and discussed by developers and community members before being adopted.
While not all ERCs become official standards, those that do—like ERC-20 or ERC-721—shape how developers build applications on Ethereum. Anyone can submit an ERC proposal, fostering open collaboration and continuous innovation within the ecosystem.
What Are ERC Token Standards?
ERC token standards define a set of rules and functions that smart contracts must follow to ensure compatibility across wallets, exchanges, and dApps. Before these standards existed, every project used custom code, leading to fragmentation and integration challenges.
By establishing common interfaces, ERC standards allow seamless interaction between different platforms. Let’s explore the most widely adopted ones.
ERC-20: The Standard for Fungible Tokens
Introduced in 2015 and widely adopted by 2017, ERC-20 is the most popular standard for creating fungible tokens on Ethereum. Fungibility means each token is interchangeable with another of the same type—just like dollars or bitcoins.
Common use cases include:
- Stablecoins (e.g., USDT, DAI)
- Governance tokens (e.g., UNI, AAVE)
- Initial Coin Offerings (ICOs)
Key Features of ERC-20:
- Defines functions like
transfer(),balanceOf(), andtotalSupply() - Ensures uniform behavior across wallets and exchanges
- Simplifies integration for developers
Despite its widespread use, ERC-20 has limitations—especially when handling multiple token transfers efficiently.
ERC-721: The NFT Revolution
While ERC-20 handles interchangeable tokens, ERC-721 introduced support for non-fungible tokens (NFTs)—unique digital assets that cannot be replaced by another identical item.
Originally proposed by Dieter Shirley of CryptoKitties in 2018, ERC-721 made it possible to represent:
- Digital art and collectibles
- In-game items and characters
- Ownership of virtual land
- Verified social media content
Characteristics of ERC-721:
- Each token has a unique identifier
- Ownership is provably scarce and verifiable
- Enables true digital ownership and provenance
This standard laid the foundation for today’s booming NFT marketplaces and creative economies.
👉 Learn how NFTs are reshaping digital ownership and creativity.
ERC-1155: The Multi-Token Standard
Building on the strengths of both ERC-20 and ERC-721, ERC-1155 introduces a more flexible and efficient model by supporting fungible, non-fungible, and semi-fungible tokens within a single smart contract.
Developed by Enjin, this standard reduces complexity and gas costs by allowing batch operations—transferring multiple token types in one transaction.
Advantages of ERC-1155:
- Combines functionalities of ERC-20 and ERC-721
- Supports dynamic token behaviors (e.g., items that start as fungible but become unique)
- Ideal for gaming ecosystems, reward systems, and hybrid financial instruments
For example, a game could issue:
- 100 fungible health potions (ERC-20-like)
- One legendary sword (ERC-721-like)
All within the same contract.
Frequently Asked Questions (FAQ)
Q: What’s the difference between a cryptocurrency and a token?
A: Cryptocurrencies like ETH have their own blockchain, while tokens are built on top of existing blockchains using standards like ERC-20 or ERC-721.
Q: Can one wallet hold different types of Ethereum tokens?
A: Yes. Most modern wallets support multiple token standards, including ERC-20, ERC-721, and ERC-1155, allowing users to manage diverse assets in one place.
Q: Are all NFTs based on ERC-721?
A: While many NFTs use ERC-721, some leverage ERC-1155 for efficiency—especially in gaming or platforms where multiple similar NFTs are issued.
Q: Why are token standards important?
A: Standards ensure interoperability. Without them, each project would require custom integrations, slowing down development and adoption.
Q: Can new ERC standards be created?
A: Absolutely. The Ethereum community encourages innovation through the ERC proposal process. New standards emerge as use cases evolve.
Q: Is ERC-20 still relevant with newer standards available?
A: Yes. ERC-20 remains the backbone for fungible tokens due to its wide support and simplicity. Newer standards complement rather than replace it.
Final Thoughts
Ethereum’s token standards have played a pivotal role in shaping the decentralized web. From enabling mass adoption of utility tokens via ERC-20, to powering the digital art revolution through ERC-721, and introducing efficiency with ERC-1155, these protocols continue to drive innovation across industries.
As blockchain use cases expand—from finance to gaming, identity to supply chain—the need for robust, scalable token frameworks will only grow. Developers and users alike benefit from understanding these foundational tools that power the future of digital ownership and value exchange.
👉 Explore how leading platforms implement Ethereum token standards at scale.