Crypto Research

What are ERCs?

Sep 14, 2021

ERC stands for Ethereum Request for Comment. Many people are familiar with the ERC-20, although not everyone fully understands what this token standard means. In this article we would like to talk about ERC20 and the difference between all ERC standards as well as which token standard to choose for smart contracts. There are a couple of standards to choose from like ERC20, ERC721, ERC115 and many others.

ERC20

The Ethereum blockchain allows you to create your own cryptocurrency or your own token that can be bought with Ether - the cryptocurrency of Ethereum. ERC20 is a standard that defines how these tokens work so that they are compatible with other platforms such as cryptocurrency exchanges. Ethereum allows you to create your own cryptocurrency without creating a new blockchain. And this is done with smart contracts. ERC20 is just a standard that defines how these smart contracts work. ERC20 is the first token standard published on Ethereum and is still used today for fungible tokens. With fungible tokens, or fungibility in general, every set of tokens is the same. Such as a EUR 10 bill that is the same as another EUR 10 bill when two people exchange it. It's the same value.

ERC721

A non-fungible token (also called an NFT) means that it cannot be replaced by another copy of the same asset type. It is unique to a particular asset. NFTs can be used for many different things. When creating this token standard for Ethereum, they talked about the fact that the use cases can be digital as well as physical property. You can own digital art, but you can also have real art that is tokenized and traded on the blockchain. Here you need another token standard, because with an ERC20 token there is no difference between the individual ERC20 tokens. In the contract, every user sees that it is only a matter of balances for certain addresses. That's all that the contracts keep and thus keep track of things. Nobody would be able to combine this with any useful uniqueness like they would with an NFT. For this reason, the first NFT token standard ERC721 was introduced. For your information, the ERC721 came in the form of the EIP721.

The structure of an ERC721 contract differs from ERC20 in that they do not have balances in the same sense. You cannot have two NFTs of the same type because each token is different. The ER721 contract instead assigns a token ID to an owner and there can only be one for each token ID. Even if you have several NFTs, they are all different and you therefore only have the token IDs that point to an owner. The ERC721 token made NFTs increasingly popular and ultimately they could be standardized in the same way as ERC20 tokens.

ERC1155

The really crucial point about ERC1155 is that it is a standard interface for contracts that manage multiple types of tokens. A single provided contract can contain any combination of fungible tokens, non-fungible tokens or other configurations (e.g. semi-fungible tokens). In principle, you can manage several token types in the same contract. A big problem with ERC721 was that you needed a contract for every new NFT. Another contract would have to be drawn up for another NFT. With ERC1155 it will take up less space in the blockchain because fewer contracts are used. Additionally, in addition to managing multiple NFTs, ERC1155 can have some fungible and non-fungible tokens and a mix of both.

Another thing that differs from the ERC721 is that you can do "batch transfers" which is a powerful feature in the ERC-1155 standard. It allows you to transfer multiple tokens in a single transaction. With ERC20 you had to make many transfers one after the other. And this takes up a lot of block size, which has been a problem - especially like recently in the bull run phase - where gas charges are way too high and the blocks are full. With "batch transfer" you can now send multiple NFTs to multiple parties in a single transfer.

So if you were wondering what kind of assets you would like to represent in a smart contract, the first thing to ask yourself is whether you want to create a non-fungible or a fungible token. This question gives you the answer that you need in choosing the right ERC standard.