What is a Token Standard and How Does It Work?
Introduction to Token Standards
There are various cryptocurrency projects within the blockchain sector. However, most of these projects are based on the same underlying infrastructure. Most of the blockchains existing at present use the core structure of the flagship blockchain called Bitcoin.
At the same time, various blockchain networks have standardized the process of blockchain governance. Some of the most popular blockchain standardization protocols are ERC-20, BEP-20, ERC-721, ERC-1155, and SPL.
What are the Basic Components of Token Standards?
Here are some defined aspects of token standardization, mentioned as under:
Interoperability
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Token standards make sure that all tokens that comply with them are able to interact with each other. In this manner, when a new token is created based on the tenets of a given standard, it is automatically compatible with the existing platforms, host networks, and applications such as wallets etc.
Composability
Another feature of the token standard allows developers to reuse an established framework for adding new components to a new token product.
Developers can also use the token standards to create an outline or basic framework when creating a new token project. At the same time, developers can study the token standard to enable streamline functionality.
Efficiency
Token standards can allow various tokens to interact between smart contracts available on various blockchain networks. In this manner, the smart contracts on different blockchain networks can deploy tokens sourced from foreign blockchains.
Token standards such as ERC-20 and BEP-20 allow the users on the blockchains to retrieve token balances from other blockchain networks that allow them to monitor it in a more efficient manner.
Popular Token Standards
There are various blockchains that have created widely used token standards such as Ethereum, BNB Chain, and Solana network. However, some of the most widely used and adopted token standards are mentioned below:
BEP-20
BEP-20 is a token standard issued by Binance Smart Chain or BSC. It is a technical specification that allows developers to issue a variety of different tokens such as peggy coins, stablecoins, utility tokens and more. This feature can incorporate various blockchain features such as blacklisting, pausing token burns, and minting etc.
Some of the defining tenets of BEP-20 token standard are total supply, total token balance, ownership transfers, transfers using smart contracts, limit on smart contract withdrawals for a given duration, and addresses that have permission to access the sell the token.
ERC-20
This token standard was created by Fabian Vogelsteller in 2015. It is a technical outline for developers to create new tokens such as digital currencies, staking coins, and other types. All tokens that incorporate ERC-20 infrastructure are interchangeable with each other and have the same functionality.
ERC-20 and BEP-20 token standards share various similarities with each other but the one is reserved for Ethereum blockchain while the other is related to BNB network.
ERC-721
Almost all NFTs on the Ethereum blockchain are complaint with the same standard called ERC-721. In accordance with the rules of ERC-721, an NFT should contain a token ID that is globally unique. Some of the features that ERC-721 NFTs have include streamlining of token transfers, current balance, total supply, and non-fungibility.
ERC-1155
The ERC-1155 token standard is a guideline for a blockchain to issue multiple tokens. It is a token standard that sets the base for blockchain protocols aiming to issue various tokens or different types of cryptocurrencies that are extended to utility tokens and NFTs.
Some of the key features of ERC-1155 token batches are mentioned as under:
Batch Transfers
It defines the technical requirements for issuing multiple tokens at a given time.
Batch Balance
It defined the procedure for collecting multiple types of tokens and digital currencies in a single step.
Batch Approval
It is the procedure that ensures that all types of tokens issued from a single blockchain unit are approved on a given address.
NFT Support
It is the protocol that ensures that a digital token can be treated as an NFT by ensuring that the supply of the token is limited to one only.
Conclusion
Token standards empower the overall infrastructure, communication, scalability, and interoperability within the blockchain networks. However, there are some risks associated with this system such as the token standards created on different blockchains may not exist within the same blockchain network or interact with each other. However, DeFi protocols have come up with a solution to address this problem in the form of wrapped tokens.
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