Token Standard Definition - Newbie Friendly Guideline

In the field of blockchain technology, a token is understood to be a digital unit that exists within a distributed network. Each project determines for itself what capabilities such an asset has and what role it plays in the ecosystem.

Simply put, a token is a digital form of value. Depending on its purpose, it can function as a full-fledged analogue of money, be used as a digitized equivalent of a real asset (e.g., the value of gold), or perform highly specialized tasks within a specific platform. There are many types of tokens, and below we will take a detailed look at what they are and how they differ from each other.

Source: GoMining

Main categories of tokens

1. Utility tokens. These are digital units that allow users to interact with products or services within a blockchain project. Such tokens are used to pay fees, receive privileges, discounts, or access to closed features on various decentralized platforms.

2. Security tokens. This type of token gives the holder economic rights: a share in profits, participation in management, or a certain portion of the organization's assets. They are often compared to traditional stocks or bonds, only in digital form.

3. Investment tokens. These assets are most often created as part of fundraising — ICOs or similar companies. Buyers of such tokens expect either an increase in their value in the future or the opportunity to receive a portion of the income provided for by the rules of the project or issuer.

What are token standards?

Token standards are technical sets of requirements that define the form, logic, and behavior of digital assets created on a specific blockchain platform. These rules provide developers with a unified template for issuing tokens and users with a clear and predictable mechanism for interacting with them.

Essentially, standards define common norms for all processes related to tokens: from their generation and transfer between wallets to the specifics of storage and management. The standard specifies the basic functions that tokens must support, such as balance checking, transaction execution, interaction with smart contracts, and other operations necessary for correct operation on the network.

The importance of token standards

Token standards are a set of rules, protocols, and agreements that define the procedure for creating, circulating, and managing digital assets. They act as “technical regulations,” allowing systems to automatically control all operations with tokens. Standards are usually developed for a specific blockchain, taking into account its features and requirements.

The use of token standards is crucial for the functioning of crypto ecosystems and provides a number of advantages:

1. Compatibility and interoperability. Thanks to standards, tokens created on one platform can work with various applications, wallets, and services that support this standard. This allows users to easily move assets between platforms, provided that they support the appropriate protocol. For developers, standards provide a ready-made set of tools for creating services and applications that simplify working with tokens. Open specifications promote transparency and accelerate the development of the blockchain industry.

2. Reliability and security. Token standards establish clear rules for transaction verification, data encryption, and transaction authentication. This reduces the risk of fraud, increases trust in digital assets, and ensures their safety.

3. Simplicity and ease of use. The unification of token interaction processes makes working with them understandable and accessible to users. Thanks to standardized transaction logic, any network participant can quickly and securely make transfers, exchanges, or other actions with digital assets.

In other words, uniform standards allow users to easily transfer, store, and use tokens without delving into the technical nuances of how a blockchain network works.

Basic token standards

There are many token formats in the industry, and each of them solves specific tasks within its ecosystem. Below is an overview of the most common standards.

1. ERC-20. ERC-20 is considered the basic and most widespread token standard Ethereum. It is used to issue interchangeable digital coins. The simplicity of developing tokens based on this template was one of the factors that led to a huge number of ICOs in 2017 and rapid growth in the number of new projects.

The idea to create a unified standard for user tokens appeared back in November 2015. The initial concept was presented by Vitalik Buterin, one of the founders of Ethereum, together with developer Fabian Vogelsteller, laying the foundation for future token protocols used around the world today.

2. ERC-721. The ERC-721 standard was created for the issuance of non-fungible tokens (NFTs). Each unit of such a token has a unique identifier, which makes it suitable for areas where individuality is important — collecting, digital art, gaming assets, and other areas related to unique digital objects.

3. ERC-404. ERC-404 is a hybrid solution that combines the properties of ERC-20 and ERC-721. Its purpose is to expand the application of NFTs in the decentralized finance segment. The standard implements a smart contract that can work with both unique and fungible tokens simultaneously.

4. ERC-1155. This standard allows multiple types of tokens to be issued within a single smart contract. This greatly simplifies asset management and reduces the number of transactions required. ERC-1155 is particularly useful in games and large projects with many different items and currencies.

5. BEP-20. BEP-20 is similar to ERC-20, but it's adapted to work on the BNB Smart Chain. This standard is used to create tokens in the Binance ecosystem and is used by most projects running on BSC.

6. BEP-2. BEP-2 is a token standard for the Binance Chain network (now BNB Beacon Chain). It was developed before the emergence of BSC and has fewer capabilities, such as not supporting batch data transmission and being inferior to BEP-20 in terms of scalability.

7. BRC-20. BRC-20 is an experimental token format created to work on the Bitcoin network. It was made possible by the Ordinals project, which taught the Bitcoin blockchain to work with NFTs and expanded its functionality beyond regular BTC transactions.8. TRC-10. TRC-10 is the basic token standard of the TRON ecosystem, which provides only the most basic functions for working with digital assets. TRC-10 tokens are most often used for transferring value or simple transactions.

9. TRC-20. TRC-20 is an improved TRON standard, comparable in capabilities to ERC-20. Tokens of this format have extended functionality and lower transaction costs compared to TRC-10, which has made TRC-20 more popular among developers.10. TRC-721. TRC-721 is a TRON protocol for issuing NFTs, similar to ERC-721. It is used in gaming projects, collectible platforms, and other applications where the uniqueness of each digital item is important.

11. SPL (Solana Program Library). SPL is the token standard for the Solana network. It provides very high throughput and low fees, making it an efficient choice for decentralized applications. Essentially, SPL performs the same functions as ERC-20, but within the Solana ecosystem.

How technological progress influences the evolution of token standards

The development of blockchain infrastructure directly determines what token standards will look like in the coming years. Improvements related to scalability — Ethereum's transition to a new architecture, the introduction of L2 solutions, and other innovations — are creating conditions for the emergence of more flexible and faster standards. This means increased network throughput, lower transaction costs, and a wider range of possibilities for developers.

In addition, a close link is gradually forming between token standards and promising areas such as decentralized finance and Internet of Things ecosystems. This interaction paves the way for new models of digital asset applications and the launch of products that were previously difficult to implement technically.

In conclusion

Token standards are a kind of technical framework that regulates the issuance and circulation of digital assets. Thanks to these rules, order is maintained in the cryptocurrency ecosystem: interaction with tokens becomes predictable, secure, and understandable for all market participants.

The existence of uniform requirements simplifies the development, transfer, and management of tokens within the blockchain. This makes digital assets more convenient to use and contributes to the emergence of new solutions and services in the crypto industry.Subscribe and get access to the GoMining course on cryptocurrency and Bitcoin, which is still free: https://academy.gomining.com/courses/bitcoin-and-mining