ERC is an abbreviation of Ethereum Request for Comments. As tokens are now becoming a next-level game for earning through various cryptocurrencies, there have to be standards to keep them under check. Like any other token, ERC provides functionality to Ethereum. The creation of these smart contracts has made the Ethereum market one of the most popular token platforms.
ERC 20 and ERC 721 differ with respect to their blockchain that creates them and the way they are traded. To simply understand a token, it can be taken as mapping of addresses to numbers storing the balance of each address. You can buy, sell, and transfer these through smart contracts. A smart contract is defined by three characteristics that are name, symbol, and decimal. The standards make use of these features to store and refer to data.
Token standards identify the requirements your contract needs to fulfill to be considered compliant to a standard. In short, these are the minimum requirements that need to be fulfilled otherwise you can go above and beyond and add more functions to your contract.
As it can be comprehended that there are thousands of tokens functional these days, so there have to be some standards to assess them. Without these standards, it would be impossible to communicate with each token’s contract. There are a number of interfaces for a balanced and smooth flow of contracts and to keep them composed. These interfaces or token standards benefit the market by developing communication between various tokens and removes the need to develop a separate interface for every token.
These standards also allow a contract to trade with other token contracts. If there were no standards it would have been difficult to manage such a large number of contracts. This would have caused a set of problems in the longer run. For example, if a wallet would want to communicate with more than one token it would have to create an individual interface for every communication and that would have been a lot difficult to manage. Thus, these token standards have allowed ease of use and a more feasible mechanism for the users.
ERC-20 is older than the standard ERC-721. It was created in 2015 but was not officially recognized by the Ethereum community till 2017. It was created as a standard, proposed by the developer in the form of ‘Ethereum Improvement Proposal’ which contained its essential protocols and functionalities. The proposal was reviewed, amended, and approved, to be called the ERC-20. The contracts were then required to be confirmed to be functional.
The Ethereum Improvement Proposal for ERC-721 was presented by Dieter Shirley in 2017 and was accepted as final in 2018. But the official authors of ERC-721 are William Entriken, Jacob Evens, Dieter Shirley, and Nastassia Sachs. They were the brains driving this upgrade. This idea first came to life in the crypto kitties project.
The ERC-20 is one of the initially created standard tokens that governs a set of guidelines and instructions that every new token created on the Ethereum blockchain has to follow. It is very popular among ICO and crowdfunding companies. There have been thousands of tokens that have been issued keeping in ERC-20 as a standard. It is mainly used to create fungible tokens. A fungible token is one that can be interconverted. That is why it solves the basic issue of compatibility of different coins and tokens, and unites them in one way or another.
It owns certain properties and features. As discussed earlier, it makes the assets interchangeable, it can be used on compatible platforms and exchanges, it allows you to perform operations with decentralized applications, and it interacts with other currencies and smart contracts. ERC-20 tokens have these six major functions. That determines the total supply, sender, allowance, transfer, approver, and receiver. At this time there are over 80,000 ERC-20 tokens. All these are running on the Ethereum blockchain.
ERC-721 is a standard that is designed for non-fungible tokens. The non-fungible assets are unique and are not convertible. These tokens are used on platforms that offer unique items such as collectibles, access keys, lottery tickets, match tickets, artworks, and seats for concerts and other meetups, etc. The standards and building terms of ERC-721 are very flexible which is why it is a widely popular and used standard.
It provides various functionalities to tokens such as allowing token transfers from one account to another, getting the current token balance of an account, getting the ownership of a token, and knowing the total supply of tokens available on the network. Other than this, it also allows the transfer of an amount equivalent to a token to a third party. Cryptokitties were the first to use these tokens, and since then, the concept has gained significant hype. The ERC-721 differs from ERC-20 in representing a class of assets rather than a single.
Both ERC-20 and ERC-721 are in stages of drafts which means no changes can be made to them in the near future. They are fully functional. However, that does not mean that chances of improvement are not in order. There sure are flaws such as in the case of transfer of ERC 20 token if the receivers tokens are not in compliance with the standard rules the sender’s tokens can be completely lost.
The major differences between ERC-20 and ERC-721 are that ERC-20 is fungible whereas ERC-721 is non-fungible. ERC-20 is used for money and money-like tokens whereas ERC-721 is used for things-like tokens. In the case of ERC-721, all tokens hold a separate identity while ERC-20 tokens are similar. The value of ERC-721 tokens may fluctuate depending upon the rarity but for the ERC-20, the value remains the same. Due to the scarcity of non-fungible tokens the ERC-721 standards are less in use than its counterpart.