What is the difference between ERC-20, ERC-721, and ERC-1155 token standards?

Understanding ERC-20: The Foundation of Fungible Tokens

1. ERC-20 is one of the most widely adopted token standards on the Ethereum blockchain, primarily used for creating fungible tokens. These tokens are identical and interchangeable, much like traditional currencies where one dollar bill holds the same value as another.

2. This standard defines a set of functions and events such as transfer, balanceOf, and totalSupply that allow seamless integration with wallets, exchanges, and decentralized applications (dApps). Its uniformity has made it the go-to choice for launching utility tokens, stablecoins, and governance tokens.

3. Because every ERC-20 token of the same type is equivalent, they are ideal for use cases involving rewards, payments, or staking mechanisms within decentralized finance (DeFi) ecosystems. Their simplicity and broad support have cemented their role in countless initial coin offerings (ICOs) and token sales.

4. However, ERC-20 does not support unique or non-fungible assets. Each token lacks individual metadata or distinguishing characteristics, limiting its application in areas requiring asset differentiation such as digital art or collectibles.

Exploring ERC-721: The Standard for Unique Digital Assets

1. ERC-721 introduced the concept of non-fungible tokens (NFTs), where each token represents a distinct asset with unique properties. Unlike ERC-20, no two ERC-721 tokens are the same, making them suitable for representing ownership of rare digital items.

2. This standard enables the creation of verifiable scarcity and provenance on the blockchain. Each token contains metadata that can include attributes like name, description, image URI, and other customizable features, allowing developers to build rich digital experiences.

3. The rise of NFT marketplaces such as OpenSea and Rarible was largely fueled by the adoption of ERC-721. It became the backbone of digital art, virtual real estate, gaming items, and profile picture projects like CryptoPunks and Bored Ape Yacht Club.

4. While powerful, ERC-721 has inefficiencies when managing multiple types of unique tokens within a single contract. Each transfer requires a separate transaction, increasing gas costs and complexity when handling large collections or in-game inventories.

Introducing ERC-1155: A Hybrid Approach to Tokenization

1. Developed by Enjin, ERC-1155 is a multi-token standard that allows a single smart contract to manage both fungible and non-fungible tokens simultaneously. This innovation addresses scalability and efficiency limitations found in ERC-20 and ERC-721.

2. With ERC-1155, developers can define multiple token types under one contract, reducing deployment costs and simplifying interactions. For example, a game could issue health potions (fungible) and legendary swords (non-fungible) from the same contract interface.

3. The standard supports batch transfers, enabling users to send multiple different tokens in a single transaction. This drastically reduces gas fees and improves user experience, especially in environments with high transaction volume such as online games or metaverse platforms.

4. Metadata flexibility and improved event logging enhance transparency and interoperability across dApps. Projects leveraging ERC-1155 benefit from streamlined asset management without sacrificing the uniqueness or divisibility required by their ecosystem.

Frequently Asked Questions

What makes ERC-20 tokens interchangeable?ERC-20 tokens are interchangeable because each unit holds identical value and properties. There is no distinction between one token and another of the same contract, enabling them to function like currency units in financial systems.

Can an ERC-721 token represent physical assets?Yes, an ERC-721 token can be linked to physical assets through documentation and verification layers. While the token itself exists on-chain, its associated metadata may include proof of ownership, serial numbers, or legal agreements tied to real-world items like real estate or luxury goods.

Why is ERC-1155 more gas-efficient than ERC-721?ERC-1155 reduces gas consumption by allowing batch operations. Instead of executing separate transactions for each token transfer, multiple tokens—whether fungible or unique—can be moved in one call, minimizing computational overhead and network congestion.

Are all NFTs based on ERC-721?Not all NFTs use ERC-721. While it was the first major NFT standard, many modern applications utilize ERC-1155 for its efficiency and versatility. Some blockchains outside Ethereum also implement their own NFT standards, but ERC-721 remains influential in establishing the NFT paradigm.