While Bitcoin can be thought of as similar to cash or gold, later innovations have opened up new uses for blockchain-based tokens. Token standards are used in order to create a smooth experience for users and developers within each blockchain.
For example, the Ethereum blockchain was designed to support the development of decentralised applications by many different parties at the same time. To keep this ecosystem of services in harmony with itself, it is important to have certain standards of development. Hence, Ethereum contains specifications for contracts and tokens according to their intended function. The most popular token standards are explained below.
ERC-20 (Ethereum Request for Comments - 20) is a token standard that was proposed in 2015. It is the primary standard by which a fungible token can be deployed on the Ethereum blockchain. By fungible, we mean the property which makes each token exactly the same in type and value to others of its kind. Such a standard is ideal to represent tokens needed for currency, voting, staking, etc.
ERC-721 (Ethereum Request for Comments - 721) is a token standard that was introduced in 2018. It is the primary standard by which a non-fungible token can be created on the Ethereum blockchain. Non-fungibility means that the token has a unique value on its own, and is not replaceable by any other. Such a standard is very useful in representing all one-off artefacts such as art, lottery tickets, special access keys, etc.
Other common examples include ERC-1155, which can be configured to act like ERC-20 or ERC-721 tokens and also allows for batched transactions, and ERC-4626, a tokenised vault standard that represents shares of a yield-bearing vault containing ERC-20 tokens.
Other blockchains have standards that may or may not be compatible with each other depending on the networks involved. For this reason, wrapped tokens have emerged as a way to make use of tokens across blockchain bridges. Tokens can also be wrapped to alter their functionality or utility on the same chain.