Wednesday W.O.W - Ethereum Token Standards 🧩🌐🔗🔷
[5 min read] Your mid-week bite sized treat on emerging tech on our journey to the Metaverse. Learn about the building blocks that ensure interoperability, security, and consistency across Ethereum
A nibble of knowledge in your inbox every Wednesday with a simple format:
🇼 What the technology is.
🇴 Objective(s) - what is it trying to achieve, with some examples
🇼 Why it is important.
This is week 42 of the 520 weeks of writing I have committed to, a decade of documenting our physical and digital lives converge.
Ethereum is the world’s largest decentralised global software platform powered by blockchain technology. It is powered by thousands of computers (aka nodes) around the world which are, in return, rewarded in Ethereum. Without a single point of failure or control, it is the ideal platform for building decentralised apps (aka dapps) to allow people from around the world to work, play, and socialise freely.
In the early days of the internet, open source standards fostered internet growth by enabling universal protocols. TCP/IP, HTML, and HTTP facilitated seamless data exchange and web development, spurring global connectivity and innovation
🇼 What are Ethereum Token Standards?
Ethereum Token Standards serve as the building blocks for creating diverse digital assets and applications on the Ethereum blockchain. If there are standard “logo blocks” that builders can work with, it makes the whole system better. Token Standards are a set of guidelines that define how different types of tokens should be created and managed on the Ethereum blockchain.
They have names prefixed by ERC followed by a number (ERC stands for Ethereum Request for Comment but that is not important)
🇴 What are their Objectives?
These standards ensure interoperability, security, and consistency across a wide array of tokens, enabling developers to focus on creating valuable applications without worrying about the underlying technical complexities.
Interoperability: Standards like ERC-20, ERC-721, and ERC-1155 promote compatibility between various tokens and applications. This ensures that tokens can be seamlessly exchanged and utilised across different platforms.
Functionality: These standards define specific functions that tokens can perform. For instance, ERC-20 tokens facilitate seamless transactions, while ERC-721 tokens enable the creation of unique, non-fungible assets.
Security: Token standards establish a common security framework, minimising vulnerabilities and risks associated with token creation and management.
Examples of common Ethereum Token Standards
ERC-20, introduced in 2015, has become a cornerstone of Ethereum tokenisation. It defines fungible tokens, which are units that are indistinguishable and interchangeable. This standard powered the ICO boom of 2017-2018, enabling countless projects to raise funds through token sales.
ERC-721 stands out by allowing the creation of non-fungible tokens. These tokens represent unique, distinguishable items, making them ideal for applications such as collectibles and digital assets. For example, CryptoKitties leveraged ERC-721 to create unique, tradable virtual cats.
ERC-1155 is all about efficiency through Hybrid Tokens. ERC-1155 is a versatile standard that combines both fungible and non-fungible tokens. This makes it efficient for projects requiring a mixture of asset types. Gaming and virtual world platforms, such as Decentraland, utilise ERC-1155 to create diverse in-game assets.
ERC-4626 is relatively new. Vaults store assets like crypto and generate yield-bearing tokens. Integrating tokens from various protocols is complex, time-consuming, and risky. ERC-4626 standardises vaults, simplifying protocol integration, reducing costs, and enhancing security. ERC-4626 fosters easier, more secure development of yield-bearing token contracts, benefiting the DeFi ecosystem.
🇼 Why Ethereum Token Standards Have a Role in the Future of The Metaverse
Interconnectedness and Ownership in the Metaverse
Central to the metaverse lies the principle of interconnectedness – an effortless flow of data, assets, and experiences across various virtual realms and applications. Ethereum Token Standards, with their stress on interoperability, offer a natural framework for making this happen. Tokens aligned with these standards can traverse virtual domains, enabling users to smoothly carry their digital assets, identities, and accomplishments across diverse metaverse platforms.
These standards also reinforce the importance of ownership within the metaverse. In a digital realm full of distinctive assets – whether virtual properties, digital wearables, or currencies – token standards provide the means to verify ownership and authenticity. This translates into a metaverse where users stand not just as participants, but as authentic proprietors of their digital possessions.
Innovation and Collaboration in Metaverse Advancement
Developers and creators can harness these standards to innovate craft pioneering assets, smart contracts, and applications that seamlessly integrate within the broader metaverse ecosystem. Collaboration constitutes another cornerstone of the metaverse's evolution. Much like to how open source standards paved the path for the internet's expansion, Ethereum Token Standards foster collaborative efforts amongst developers, ensuring the metaverse's development thrives through inclusivity and diversity. By embracing common standards, developers can more fluidly collaborate on projects, exchange resources, and collectively craft the metaverse's infrastructure.
Monetisation and Digital Economies
Tokens aligned with these standards can represent a diverse array of digital assets, spanning from virtual currencies and commodities to exclusive collectables. As metaverse platforms evolve into bustling marketplaces, users can engage in buying, vending, and trading these tokens, cultivating vibrant digital economies. Ethereum has $25 billion total value locked right now, this number will grow significantly!
The ability to control the behaviour of these tokens via smart contracts introduces intricate economic models to the metaverse. Imagine a virtual art gallery releasing limited edition digital artworks as ERC-721 tokens, each with adjustable royalty fees for the artist. As these artworks circulate within the metaverse, the artist continuously gains a share of subsequent sales.
Ethereum Token Standards serve as the cornerstone for creating a dynamic, interconnected, and user-focused metaverse. By fostering interoperability, innovation, ownership, and digital economies, these standards offer the necessary tools to shape a future of the metaverse.
That’s all for this week! If you have any organisations in mind that could benefit from learning about emerging technology, be sure to reach out. Educational workshops are one of many consulting services I offer.