What is the difference between an ERC-20 and an ERC-721 token?

Understanding ERC-20 Tokens

1. ERC-20 is a technical standard used for smart contracts on the Ethereum blockchain to implement tokens that can be transferred and traded.

2. These tokens are fungible, meaning each token is identical in value and function to every other token of the same type.

3. They support basic functions like transferring tokens between addresses and querying account balances.

4. ERC-20 tokens are widely used in decentralized finance (DeFi) applications, initial coin offerings (ICOs), and as utility or governance tokens within dApps.

5. Their uniformity makes them ideal for representing currencies, shares, or points where interchangeability is essential.

Distinguishing Features of ERC-721 Tokens

1. Unlike ERC-20, ERC-721 defines a standard for non-fungible tokens (NFTs), where each token is unique and not interchangeable with another.

2. Each ERC-721 token has distinct metadata and ownership attributes, allowing it to represent one-of-a-kind digital assets such as art, collectibles, or real estate.

3. The standard enables tracking of individual token ownership and supports secure transfer mechanisms tailored for unique items.

4. NFT marketplaces and gaming platforms leverage ERC-721 to authenticate scarcity and provenance of digital goods.

5. Because no two ERC-721 tokens are the same, they enable new economic models based on digital ownership and verifiable rarity.

Fungibility and Use Cases in Practice

1. Fungibility in ERC-20 allows seamless exchange, similar to how one dollar bill can be swapped for another without loss of value.

2. This property supports high-volume trading and integration into financial systems requiring interchangeable units.

3. In contrast, ERC-721’s non-fungibility means each token carries specific data that differentiates it, such as artwork attributes or serial numbers.

4. A CryptoPunk NFT cannot be replaced by another Punk without considering its unique traits and market value.

5. Applications like digital identity, luxury authentication, and intellectual property rights benefit from the uniqueness enforced by ERC-721.

Technical Differences in Implementation

1. ERC-20 contracts manage a total supply and track balances using simple mappings of addresses to integer values.

2. Transfers in ERC-20 involve moving a specified quantity from one wallet to another, treating all tokens equally.

3. ERC-721 introduces a more complex structure, mapping each token ID to a specific owner, enabling individual tracking.

4. It includes functions to query which address owns a particular token ID and to approve third-party transfers of specific tokens.

5. Events emitted by ERC-721 contracts include the token ID during transfers, ensuring transparency about which exact asset changed hands.

Common Questions About ERC-20 and ERC-721

A: While ERC-721 tokens themselves are indivisible and non-fungible, protocols have been developed to allow fractionalization through companion tokens—often ERC-20s—that represent shares of an underlying NFT.

Q: Are ERC-20 tokens always tradable on exchanges?

A: Not necessarily. While many ERC-20 tokens are listed on centralized and decentralized exchanges, some may be restricted due to regulatory compliance, lack of liquidity, or design intent limiting transferability.

Q: Do ERC-721 tokens consume more gas than ERC-20 during transactions?

A: Generally yes. Due to their complexity and the need to handle unique identifiers and metadata, ERC-721 transfers typically require more computational resources and thus incur higher gas fees compared to standard ERC-20 transfers.

Q: Can a single smart contract include both ERC-20 and ERC-721 functionalities?

A: Yes. Developers can create hybrid contracts that adhere to multiple standards simultaneously, enabling a project to issue both fungible utility tokens and unique collectibles under one deployed contract.