What Are Ethereum Tokens?

Ethereum is one of the most popular cryptocurrencies in the world, currently ranked 2nd by market capitalization. It is also the most used smart contracts platform with more than 230,000 tokens created on top of it.

Simply put, an Ethereum Token is a digital asset created on top of the Ethereum network. Ethereum Tokens make use of Ethereum’s existing blockchain infrastructure which means developers don’t have to create a new blockchain.

Types of Ethereum Tokens

The most popular type of Ethereum token is the ERC-20 token standard. The ERC-20 standard is basically a set of rules for developers, it defines how the tokens will be transferred within the Ethereum network. Most tokens use this standard but they can implement functions of other token standards in the ERC-20 standard.

Even though the ERC-20 standard is the most popular standard out there, the code has a pretty significant bug that will burn tokens forever if the transfer function is used incorrectly.

The ERC-223 Standard

A lesser-known but better standard is the ERC-223 standard which was created with the purpose of solving some of the ERC-20 standard flaws like cheaper transaction fees. One day, the ERC-223 standard could definitely replace the traditional ERC-20 as ERC-223 tokens are compatible with ERC-20 tokens.

Although this standard is better in theory, not many projects are currently using it. The most popular token currently using the ERC-223 standard is ChainLink although Link tokens are actually ERC-20 tokens, they do have the additional ERC-223 ‘transfer and call’ functionality which enables tokens to be ‘received and processed by contracts within a single transaction’

The ERC-721 Standard

Another type of Ethereum token is the ERC-721 standard. This token standard became really popular thanks to an online game about collectibles called CryptoKitties. The idea behind ERC-721 tokens is that it allows developers to create NFTs (Non-Fungible Tokens). According to Wikipedia, A non-fungible token is:

‘a special type of cryptographic token which represents something unique; non-fungible tokens are thus not mutually interchangeable by their individual specification.’

Because ERC-721 tokens are unique they are mainly used for digital collections, however, they can also represent real-world assets. WePower, for example, is a company that grants users direct access to renewable energy through the use of its WPR token. It’s an ERC-721 token used to store tangible value, in essence, tokens are a specific amount of electricity.

The ERC-777 Standard

This standard is attempting to solve the flaws of the original ERC-20 standard, it’s a new proposal that resolves the issues with the ERC-223 standard too. The ERC-777 standard preserves the compatibility with the ERC-20 smart contract while introducing new features like ‘ Whitelisting Operators’.

Users are able to block payments from blacklisted addresses. Additionally, the ERC-777 token standard has multiple options available to prevent the loss of tokens but it carries a few risk factors like using a central registry of smart contracts or the need for more ‘Gas’ which can put more pressure on the Ethereum network.

Conclusion

There are many Ethereum token standards out there and this is only the beginning. One standard is not necessarily better than the others, for instance, the ERC-721 standard is great for collectibles but can’t be used for anything.

The ERC-20 standard remains as the most popular standard but could be replaced soon due to the bugs and issues is currently facing. This could be a long process, though, as most big projects are already working with the ERC-20 standard.