What Is ERC-20?
ERC-20 and ERC-721 are both token standards on the Ethereum blockchain. ERC-20 defines a set of rules that all tokens of this type must follow to ensure compatibility with smart contracts, exchanges, and wallets. ERC-721, on the other hand, is used for creating non-fungible tokens (NFTs), where each token is unique and cannot be exchanged for another on a one-to-one basis.
Introduced in 2015, ERC-20 quickly became the most popular standard for launching new cryptocurrencies and decentralized applications (DApps). In contrast, ERC-721 was created to meet the growing demand for digital collectibles and assets, marking a significant shift in how digital ownership is perceived and transferred.
Key Features of ERC-20:
- All tokens are identical (fungible).
- Interchangeable – one ERC-20 token is equal to another.
- Used in ICOs and DeFi projects.
- Supported by most cryptocurrency wallets and exchanges.
Examples of Popular ERC-20 Tokens:
- USDT (Tether) – a stablecoin pegged to the US dollar.
- UNI (Uniswap) – a token for the decentralized exchange.
- LINK (Chainlink) – a token for decentralized oracles.
What Is ERC-721?
ERC-721 is a token standard for non-fungible tokens (NFTs). Each ERC-721 token is unique and cannot be exchanged on a one-to-one basis with another token.
Introduced in 2017, ERC-721 played a crucial role in the explosion of NFT popularity.
Key Features of ERC-721:
- Tokens are non-fungible (unique).
- Each token has a unique identifier and metadata (image, video, music, etc.).
- Used in digital art, gaming, and metaverses.
Examples of Popular ERC-721 NFTs:
- CryptoPunks – one of the first and most iconic NFT collections.
- Bored Ape Yacht Club (BAYC) – a collection of digital apes owned by celebrities.
- Decentraland (MANA) – NFTs for virtual real estate.
Key Differences Between ERC-20 and ERC-721
| Feature | ERC-20 | ERC-721 |
|---|---|---|
| Token Type | Fungible | Non-fungible |
| Uniqueness | All tokens are identical | Each token is unique |
| Use Cases | Cryptocurrencies, DeFi, ICOs | NFTs, digital art, metaverses |
| Examples | USDT, UNI, LINK | CryptoPunks, BAYC, Decentraland |
| Support | Most crypto exchanges and wallets | Specialized NFT platforms |
Pros and Cons of ERC-20 Tokens
✅ Pros
- High Liquidity – widely used on exchanges.
- Standardization – easily integrated into DeFi.
- Scalability – suitable for mass adoption.
❌ Cons
- Gas Fees – transactions can be costly.
- Security Risks – vulnerabilities in smart contracts.
- Limited Functionality – no unique attributes for individual tokens.
Pros and Cons of ERC-721 Tokens
✅ Pros
- Uniqueness – each token has its own value.
- Scarcity – many NFTs have limited supply.
- Expanding Metaverse and Digital Art Market – new opportunities in the digital world.
❌ Cons
- Lower Liquidity – not all NFTs can be sold quickly.
- High Volatility – prices fluctuate drastically.
- Fraud Risk – many fake or low-quality NFTs.
Which Standard Is Better for Investment?
ERC-20 is ideal for those looking to invest in cryptocurrencies or participate in DeFi. It is more stable and widely accepted.
ERC-721 is attractive for those who believe in the future of NFTs and metaverses. However, this market is still volatile, requiring caution.
Conclusion
Both standards play crucial roles in the crypto ecosystem but serve different purposes.
- ERC-20 – best for cryptocurrencies and DeFi.
- ERC-721 – essential for NFTs and digital art.
Before investing, weigh the risks, as both cryptocurrencies and NFTs are highly volatile assets.
📌Also Read: How Does the Lightning Network Work for Bitcoin? ⚡