Many crypto assets have been found to date, but the blueprints forming the base of all these assets are almost the same. These blueprints are known as the token standards. The properties and characteristics of these blockchain tokens are defined through these token standards.
In this guide article, we will learn why token standards are needed and their usage in the crypto industry.
Why are Token Standards Needed?
Token standards are used in the crypto industry to provide specific features to the blockchain network.
Using the token standards in the blockchain network helps operate the products together. It makes sure they can interact with each other. When a new token is issued by any project, it is created according to the token standard. These tokens are compatible with the applications and platforms such as crypto wallets.
When an ERC-20 token is created, it is interoperable with all the services and products built under the same token standard. It provides the feasibility of exchanging ERC-20 tokens with one another. Traders might find it challenging to trade multiple cryptocurrencies if token standards were not there.
Moreover, it might also require them to use segregated wallets for all currencies. However, token standards allow users to hold several assets in a single wallet.
Developers can use the existing components for the creation of new products. It is possible due to the composability feature used in programming. The same principle is used in token standards when new tokens are created. It provides maximum time to developers for new innovations and experimentations as the system’s basic functionality requires minimal time.
Smart contracts can also interact conveniently with each other using token standards. Smart contracts are used to monitor the creation of new tokens. For this purpose, new tokens are deployed that follow token standards.
Several functions, such as token balances or address resolutions, are attached to different token standards, such as BEP-20 and ERC-20. In addition, an ABI interface can also be used for the proper inspection of an ERC-20 token. Moreover, it also helps track the transfer of any data or information.
A Few Commonly Used Token Standards in Decentralized Finance and Crypto
The BNB Smart Chain (BSC) uses a popularly known token standard, BEP-20. Although it was created to specify the BSC technically, it allows the developers to create multiple other tokens. These tokens include several stablecoins, utility tokens, and Peggy coins. In addition, a lot of new features are also introduced by BEP-20, such as minting and blacklisting.
The BEP-20 token standard performs different functions, a few of which are discussed here. The transfer function helps the users to send their currency to others. Using the Transfer from function, users can send tokens through smart contracts on behalf of any third party.
Users can check the total supply of BEP-20 tokens using the Total Supply option and the total Balance through the Balance of option. Any external address allowed to spend the token uses the Allowance function.
ERC-20 token standards assist in the exchange of different tokens with each other. All the ERC-20 tokens have the same functionality, irrespective of their total count. It is similar to the BEP-20 token even though it operates on the Ethereum blockchain.
ERC-721 is the token standard shared by the non-fungible tokens on the Ethereum network. It requires any asset to own a globally unique token ID.
What are the Limitations of Token Standards?
The tokens following the same token standards can be traded with each other. However, the ones created on different ones cannot. This is due to the different governing rules for different token standards. This makes it difficult for crypto assets on different token standards to exist on the same platform.
Tokens created on the blockchain network follow blueprints known as token standards. They provide easy interaction among the blockchain networks adding multiple features to them.
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