Without any doubt, cryptocurrencies exist in different standards. It is called token standards. This refers to a body of agreed principles that governs the development and design of cryptocurrencies in a given blockchain network. Simply put, token standards define how crypto works. Before investing in any crypto asset as a beginner, it is imperative that you understand the standard of that particular token. Worthy of note that token standards make sure that every cryptocurrencies developed in the same principle interact and are compatible with one another. Today, there are scores of token standards in the industry. They include ERC-20, BEP-20, ERC-721, ERC-1155 and many more.
Certainly, token standards serve numerous purposes. One of the purposes is efficiency. This is because the standards unlock interaction between smart contracts. For instance, ERC-20 standard has an address retrieval and token balances features. These features help in the efficient monitoring of tokens in that standard. Another notable purpose of token standards is composability. The standards pave the way for the developers to leverage on a composable guide, thereby making it easy for them to create similar crypto products. This thus means with a particular standard, developers understand what they need to do to build a crypto with the same standard. By virtue of this, they spend less time on designing the basic functionality of the new token for experimentation.
Apart from this, token standards also foster interoperability. This has to do with compatibility of tokens. Certainly, tokens built on the same standard are usually compatible with projects and products developed with that standard. For instance, ERC-721 tokens remain interoperable with all products on the same standard. In a nutshell, token standards make it easy to trade multiple cryptocurrencies. As earlier asserted, there are numerous token standards but this article wants to focus only on differentiating between ERC-20 and ERC-721 token standards.
Difference between ERC-20 and ERC-721
Mainly, the major assignment of ERC-20 is to design a uniform Application Programming Interface (API) for virtual coins with smart contracts achievable. Consequently, this standard of token works as a standard regulation for the Ethereum Network. ERC-20 works in accordance with some rules before new coins can be exchanged, sent, and received in a wallet. Also, this standard of token explains the API of smart contracts instead of their performance.
On the other, ERC-721 represents a group of assets. However, ERC-20 on the other hand represents a particular a particular type of asset. Simply, the ERC-721 token is mainly regarded as a standard for Non-Fungible tokens. Therefore, a major difference between ERC-20 and ERC-721 is that the former is a Fungible token, while the latter is a Non-Fungible token.
Further, ERC-20 tokens are interchangeable and they can stand for a single entity. ERC-721 on the other hand stands for a collection of assets. Due to that, ERC-721 is not divisible while ERC-20 is divisible. For ERC-20, there is no precise distinction between various tokens. However, tokens of ERC-721 standard have distinctive identity each and they are easily identifiable. In terms of value, ERC-20 tokens can maintain a unified value. ERC-721 tokens differ in value and they sometimes fluctuate based on their rarity and uniqueness.
Additionally, ERC-20 tokens are easily adopted as a medium of exchange and payment. ERC-721 due to its rigid nature and distinctiveness cannot be easily adopted as a medium of exchange and payment. Also, ERC-20 tokens can be divided into decimals, however, ERC-721 tokens are not divisible.
Conclusion
To some extent, ERC-20 tokens are more popular than their ERC-721 counterparts. This is due to how the ERC-20 standard has been adopted by many projects. Likewise, the ERC-20 token’s flexibility also aided its popularity above its counterpart. This flexibility has provided them with various use cases more than ERC-721.
The then-growing demands of NFTs pushed ERC-721 into the limelight. The cooling demands on this standard of token have shifted attention from it. Nonetheless, both standards of tokens have their own distinctive strength which suits their respective purposes.