Token standards are a kind of road rules for digital assets in the blockchain world. They establish order, ensure security, and maintain the efficiency of each token.

Thanks to these token standards, tokens can interact with each other, exchange information, and operate according to norms.

In this article, we will delve into the depths of token standards, uncover their peculiarities, and explore their practical applications.

Tasks and Purposes

Token standards, like conductors in the world of digital assets, bring order and discipline among the 'crypto orchestra'. They make the functioning process more transparent and understandable. Without token standards, assets will not adhere to common rules and requirements.

• Compatibility plays a key role. Thanks to a unified standard, different tokens can easily 'communicate' with each other without causing conflicts. When a project issues a token according to a specific standard, it automatically makes it compatible with all other products that use the same standard. For example, the ERC-20 standard has become the language of communication for tokens in the Ethereum ecosystem.
• Ease of integration. Here is another advantage of standardization. Thanks to standards, developers can implement new assets much faster and easier, using proven components and solutions. This saves them a lot of time and effort that could have been spent creating basic functionality from scratch.
• Efficient coordination. Standards optimize the interaction of smart contracts with assets, providing developers with functions and interfaces for controlling and tracking token transactions, balances, and other important operations.
• Security, which is not the last thing. Many leading standards, including ERC-20, provide verified mechanisms for protection against errors and vulnerabilities, which significantly increases the level of security of standardized tokens compared to non-standard analogues.

Varieties of Standards

The world of cryptocurrencies offers a variety of token standards, each with unique features and designed for specific purposes. Let's take a closer look at them.

BEP-20

The BEP-20 token standard was created by Binance for their Binance Smart Chain blockchain network with the aim of creating an enhanced version of ERC-20. It boasts high speed and scalability due to the PoSA mechanism, as well as low transaction fees.

BEP-20 is compatible with the Ethereum Virtual Machine (EVM) and supports the creation of decentralized applications (DApps). It allows for the issuance of new tokens, securely transferring them between addresses, as well as verifying asset information.

This standard is widely used in the Binance ecosystem, especially among DeFi protocol developers, due to the fast and inexpensive transactions on BSC. BEP-20 tokens are supported by many crypto wallets.

ERC-20

One of the most well-known and widely used token standards – ERC-20, was specifically developed for use on the Ethereum platform. It establishes clear rules for token issuance and circulation in smart contracts.

Features of ERC-20:

• Full compatibility with other products in the Ethereum ecosystem
• Flexibility and ability to support various types of tokens
• High level of security
• Use of the Solidity programming language to create smart contracts
• Easy integration of tokens into different projects and applications

This standard defines mandatory functions such as token transfer, balance checking, and owner approval of operations. Thanks to these basic rules, ERC-20 tokens can interact with each other without any issues.

ERC-20 has become an incredibly popular standard due to its ease of integration and ability to create various types of tokens: stablecoins, DeFi project internal tokens, NFTs, and more. Many leading cryptocurrency projects are based on this standard.

ERC-721

ERC-721 is another popular token standard on the Ethereum network, different from ERC-20. It is designed to create Non-Fungible Tokens (NFTs) with unique properties and manage virtual assets.

Features of ERC-721:

• Allows the issuance of NFTs with individual characteristics
• Each token has a unique identifier
• Provides reliable mechanisms for authenticity verification and ownership of NFTs
• Compatible with the Ethereum infrastructure, including wallets and decentralized applications

ERC-721 allows for the issuance, transfer, and confirmation of ownership of unique NFTs. Smart contracts of this standard track the movement of each non-fungible token considering its unique metadata.

This standard serves as the foundation for many NFT projects in the fields of art, collecting, gaming, and metaverses. Clear rules ensure ease of implementation, security, and token functionality in applications.

ERC-1155

The new ERC-1155 standard for the Ethereum network combines the features of ERC-20 and ERC-721, providing the ability to create both fungible and non-fungible tokens in a single smart contract. It supports the issuance of various token types through one contract, improved scalability, optimization of data usage, and reduces gas costs for token operations due to compact information.

ERC-1155 is compatible with ERC-20 and ERC-721 standards, wallets, and DeFi applications, offering a wide range of possibilities for various use cases such as games, NFT markets, DeFi protocols, digital asset management, and more. The main advantage of the standard is that it allows different types of digital tokens to be combined under one smart contract, which improves efficiency, simplifies development processes, and reduces deployment costs.

Hard constraints

The use of common token standards has many advantages, but it is important to remember that they are not without certain limitations. Comparing them, two main points can be highlighted.

First, the issue of compatibility. Different standards may not be compatible with each other, creating some difficulties in data exchange or use on different platforms. For example, a BTC owner may not be able to easily use them in the ERC ecosystem of the Ethereum standard. To address this issue, wrapped tokens have been introduced to ensure compatibility between blockchains.

Second, limitations in functionality. Standards establish a set of functions for tokens, but sometimes this is not enough for more complex projects, such as DeFi or decentralized applications. They require additional capabilities that go beyond standard specifications.

Developers are forced to come up with non-standard solutions, which threatens compatibility, security, and convenience of integration, akin to cosmic asteroids, somewhat uncertain on their path.

Token standards require constant updates, like children needing a new toy every month, creating whips for coordination and changing already familiar norms and rules.

New features and improvements may be delayed due to the complexity of the update process. Inconsistencies in implementation can spoil all plans, and problematic implementations of standards can even overshadow the relative security in the blockchain network.

What are Wrapped Tokens?

Wrapped tokens are cryptocurrency assets transformed into bridges between different blockchain networks. They allow for the use of assets from one network within the ecosystem of another, while complying with the standards of each. It's like creating a wrapped version of an asset that can travel between different cryptocurrency worlds.

However, it's important to note that wrapped tokens, though they may seem new and unique, are still tied to their original assets. When a holder of wrapped tokens decides to return to the original network, they are burned, and the original coins are released.

The principle of locked collateral in action: as a blockchain network visitor makes a deposit of their assets, they receive wrapped tokens, and then, if they want to return, they exchange them for the original coins. It's convenient, practical, and helps different blockchains get closer to each other. Ultimately, wrapped tokens become not only a bridge but also a kind of unified currency for various digital assets.

The most well-known wrapped tokens include Wrapped Bitcoin (wBTC), Wrapped Ether (wETH), as well as wrapped versions of various ERC-20 tokens. Projects like RenVM, Ren Protocol, and Keep Network are involved in issuing such products.

Final Note

For successful traders, knowledge of token standards plays a key role. They determine trading possibilities, affect fees, and transaction speed. The choice of standard can significantly impact the results of transactions and cost savings. Therefore, it's important to understand the characteristics of each standard for effective work in the crypto market.