What is a token?
Many people assume tokens and coins are the same, but that’s not correct. While they are often compatible with the cryptocurrencies of that network, they are a wholly different digital asset class. Tokens are units of value that we create on top of existing blockchain networks while Cryptocurrencies are the native asset of a specific blockchain protocol. For example, ether (ETH) is the cryptocurrency native to the Ethereum blockchain, there are many other different tokens that also utilize the Ethereum blockchain such as DAI, LINK and COMP.
The majority of crypto tokens have been built on top of Ethereum. An ERC token is native to the Ethereum blockchain. The most widely used sets of ‘fungible’ digital tokens are ERC-20. Developers ensure that their tokens are supported by wallets and can interoperate with Ethereum’s ecosystem of decentralized apps by using the ERC-20 standard when launching their tokens. ERC-20 tokens are created by establishment of smart contracts which allows for some interesting use cases like the creation of a set of tokens.
ERC721 is a token standard on Ethereum for Non-Fungible Tokens (NFT) that are unique and cannot replace another. These tokens allow developers to tokenize ownership of any arbitrary data. There is a variety of ERC721 tokens now available on Ethereum among which the most popular one would be CryptoKitties.
ERC-1155 is another token standard on the Ethereum blockchain that support both kinds of tokens, fungible and non-fungible. The goal is to create a smart contract interface that can represent both types. With the ERC-1155 standard, you can mint an infinite amount of tokens under a smart contract which reduce network congestion and gas fees. ERC-1155 is also being used for in-game assets as it is multi-token standard. The number of different tokens will continue to grow at a remarkable pace as new tokens are developed to expand blockchain’s use cases.