Token Standards

The increase in the creation of tokens leaves one to wonder how they are created and what rules they do follow.

This article talks about what tokens and standards mean, the definition of a token Standard and its history, the benefits of token Standards, and the common types of ethereum token Standards.

What are Token Standards?

Before we proceed, let's take a look at the definition of a token and what standard really means.

A Token is a digital currency that is created, managed, and distributed using Blockchain technology, and A Standard is something that is established by authority as a model or an example.

So when we say Token Standards, it means an example or model put by authority that shows how a token is created and defines what data a token should contain and its behaviour and actions.

Token Standards are a set of predefined rules that determine how tokens are created and they dictate how a crypto currency should work. You can't create a token without following the protocols on the Blockchain you want to create the token on.

Benefits of Token Standards

Token standards are important in the world of blockchain and cryptocurrency. Here's why;

• Standards provide a common framework that makes the development of tokens easy, reducing the time and effort required to create custom tokens.

• Token Standards ensures that cryptocurrency tokens are interchangeable. This enables tokens to be traded on exchanges as each token of the same standard holds the same value.

• Token Standards ensures that cryptocurrency tokens can be easily integrated into decentralized applications, wallets, and exchanges.

How do token standards work

Token Standards is a set of rules in charge of how tokens are created. Developers can create their own tokens as the features are standardized.

Token Standards are set of proposals put forward by the blockchain developers and community. These proposals are carefully reviewed, and once they are approved by a committee and finalized, they become a set of implementable Standards.

Using the Ethereum blockchain as an example, when a proposal is made, which is called An Ethereum Improvement Proposal (EIP), the Ethereum core developers analyses it and if it is an important addition to the Blockchain, the proposal is a accepted and implemented. The implemented proposal is called an Ethereum Request for Comment (ERC).

Ethereum Request for Comment (ERC) defines the set of rules and protocols that tokens must follow in order to become compatible with the Ethereum network. They act as a set of technical documents that contain guidelines for smart contract development.

Common Ethereum Token Standards

The Ethereum network is the most preferred for many developers to implement smart contracts, and it uses a variety of token standards. The solidity programming language is used to create all token contracts on the Ethereum blockchain. Below are the types of the most common Ethereum token standards;

ERC-20

Ethereum Request for Comment 20 applies to fungible tokens, tokens with the same value, and can be interchanged.

For example, if you borrow 20 dollar note from someone, while returning it there's no indication that you're returning the exact 20 dollar note you were borrowed, the only thing the person is concerned about is getting their money, this is because it is of the same value.

It is the most widely adopted Ethereum token standard. They are 6 required functions that a token must contain;

  function totalSupply() public view returns(uint256);

1. totalSupply()

   This is a public function that displays the total number of tokens available. It is labelled with a view function, so calling it won't consume any gas.

2. balanceOf()

   Another public function with a view modifier means it is accessible to all and gas free. This function takes in an Ethereum address and returns the number of tokens allocated to the address.

3. transfer()

   This function consumes gas and causes a change in the Ethereum smart contract. It transfers tokens from one address to another when called by a token holder.

4. transferFrom

   This function is used by a spender to transfer an allowed number of tokens.

5. approve

   Calling this function approves a specific address to spend a certain amount of tokens on behalf of the caller.

6. allowance

   This function returns the amount of tokens approved by the owner that the spender can transfer.

History of ERC-20

In the year 2015, there wasn't a way to ensure that the tokens created could be used or exchanged by everyone using the blockchain. In November 2015, a developer named Fabian Vogelsteller proposed the ERC-20 to address the need for a standard within smart contracts on the Ethereum blockchain.

Fabian submitted the proposal via the project's github page as an Ethereum Request for Comment because it was the twentieth comment that it got assigned ERC-20.

The proposal was approved in 2017 as Ethereum Improvement Proposal 20 (EIP-20).

ERC-721

This has to do with the concepts of non-fungible tokens. Non-Fungible comes from the word non-interchangeable. This means that this kind of tokens can not be interchanged. They do not represent the same value.

The ERC-721 standard defines a set of functions that allow for the creation, ownership, and transfer of NFTs. Examples of ERC-721 includes Crypto Kitties, DeGod, Yoots, CryptoPunks, FoxPals, and lots more. These NFTs can be traded on the NFT marketplace.

ERC-1155

This token standard addresses the shortcomings in ERC-721. It is a standard for contracts that manages multiple token types.

This is a multi token standard that was proposed by Enjin in 2018. It is a unique token standard that allows for the creation of fungible, semi-fungible, and non-fungible tokens. It has several benefits, which includes reducing the transaction cost required to manage multiple token types and allowing batch transfers- transfer of multiple tokens in a single transaction.

ERC-223

This standard aims to improve ERC-20 token standards. It is designed to address errors when sending tokens to smart contract addresses. It provides the cancellation of transactions, which prevents tokens from being lost and provides a better user experience. This standard aims to reduce the cost of gas during transactions by transferring both tokens and data. However, it has not been widely adopted yet.

ERC-777

It is designed to provide a more flexible and efficient token standard for the Ethereum network. ERC-777 provides a mechanism known as 'hooks'. Hooks combine two messages - sending tokens and notifying a contract into one - this helps to reduce the cost of gas. It also has an additional function that rejects transactions from blacklisted addresses.

Apart from the Ethereum Token Standards, they are other token Standards for other blockchains. This section introduces them;

• BEP-2 TOKEN STANDARD - This is the technical protocol to implement the Binance Token (BNB) on the Binance blockchain.

• TZIP - Tezos Interoperability Proposal contains the design documents for the TEZOS community and technical documentation containing the improvement of the network.

• NEP - NEO Enhancement Proposal contains the contract standards for the NEO Ecosystem.

Conclusion

Token standards play an important role in the development of a blockchain. It allows developers to create tokens and dApps within the rules set out by the blockchain. It has helped drive innovation and growth in the blockchain industry, and It provides a foundation for building secure applications.

Congratulations, now you have basic knowledge of the popular token standards circulating in the Ethereum network.

REFERENCES

• Token Standards

• Open Zeppelin Contract

• ERC Token Standards for dummies