What are token standards like ERC-20 and ERC-721, and why do they matter?
Many different tokens can sit in the same wallet and trade on the same apps because they follow a handful of shared rulebooks. Here is what those rulebooks say.
The short answer
A token standard is a shared set of functions that a token's smart contract promises to support, so wallets and apps can handle any compliant token the same way. ERC-20 covers interchangeable tokens, ERC-721 is commonly used for unique tokens (NFTs), and ERC-1155 handles both.
Key takeaways
- On Ethereum, a token is a smart contract that keeps track of who owns what; a token standard fixes the functions that contract must offer.
- ERC-20, proposed in November 2015 and now final, is the standard interface for fungible tokens, where every unit is interchangeable.
- Non-fungible tokens assign uniquely identified items to addresses, and are commonly built on the ERC-721 standard.
- ERC-1155 lets a single contract manage both fungible and non-fungible tokens through one interface.
- A standard guarantees a common format, not honesty: anyone can deploy a compliant token with any name and symbol.
What is a token standard?
On Ethereum, a token is not a coin stored in your wallet. It is an entry in a smart contract: a program on the blockchain that records how many units each address owns and lets owners move them. Anyone can write such a contract, which raises an obvious problem. If every token used different function names, every wallet and exchange would need custom code for each one.
A token standard solves that by fixing a common interface: a list of functions and events that every compliant token contract must provide. The ERC-20 proposal states the goal directly: a standard interface lets any token on Ethereum be reused by other applications, from wallets to decentralised exchanges1.
Standards are published as Ethereum Improvement Proposals (EIPs). ERC-20 is EIP number 20, filed in the ERC category of the Standards Track1. A U.S. National Institute of Standards and Technology (NIST) overview of token design calls ERC-20 the most commonly used de facto standard for fungible tokens2.
Figure · Where a token standard sits
- L4Wallets and appsshow balances, send, swap
- L3Token standardagreed functions and events
- L2Token contractrecords who owns how much
- L1Ethereumruns the contract, stores state
What is the difference between fungible and non-fungible tokens?
Fungible means interchangeable. One dollar bill is as good as another, and one unit of a fungible token is as good as any other unit. NIST defines a fungible token as a data structure that assigns interchangeable units, or account balances, to blockchain addresses, with supply managed by code2.
A non-fungible token (NFT) is different. NIST describes it as assigning uniquely identified, uniformly formatted data objects to addresses2. Each one is distinct, like a numbered concert ticket rather than a banknote. NFTs commonly follow open standards such as ERC-7212. ERC-721, finalised as a standard after being proposed in January 2018, identifies each NFT by a pair: the address of its contract and a number called the tokenId4. Required functions include ownerOf, which reports who holds a given token; a link to descriptive metadata is optional4.
Figure · Fungible and non-fungible tokens
Fungible (ERC-20)
- Every unit is interchangeable
- Tracked as a balance per address
- Can be split into small fractions
- Example: a currency-like token
Non-fungible (e.g. ERC-721)
- Every token is unique
- Tracked as an ID per address
- Owned whole, one ID at a time
- Example: a numbered digital item
Some projects need both kinds. A game might issue an interchangeable in-game currency and unique items. NIST notes that ERC-1155 provides a hybrid interface that can handle fungible and non-fungible tokens from the same contract2. Its specification, created in June 2018, lets each token ID be its own token type with its own supply, and adds batch functions such as safeBatchTransferFrom to move several types in one transaction5.
What does the ERC-20 standard actually require?
ERC-20 is short. It lists nine functions and two events1. Three functions, giving the token's name, symbol and number of decimals, are optional. The other six are required.
The ERC-20 interface in plain English Source: [1]
| Function or event | Required? | What it does |
|---|---|---|
name, symbol | Optional | Human-readable name and ticker chosen by the creator |
decimals | Optional | How many decimal places the display should use |
totalSupply | Required | Total number of units in existence |
balanceOf | Required | How many units an address holds |
transfer | Required | Send units from your address to another |
approve | Required | Let another address spend your units up to a set amount |
allowance | Required | Check the amount an approved spender is allowed to use |
transferFrom | Required | Lets an approved spender move units on the owner's behalf |
Transfer, Approval events | Required | Public logs that wallets and explorers read |
Worked example
How decimals work
Contracts store whole numbers only. The decimals value tells apps where to put the decimal point. The standard's own example: a value of 8 means the stored amount is divided by 100,000,0001.
So a balance stored as 150,000,000 in a token with 8 decimals is displayed as 1.5 tokens. The same stored number in a token with 18 decimals would be a tiny fraction of one token, which is why wallets must read decimals correctly.
How an app spends your tokens: approve, then transferFrom
- 1
You approve
You sign an
approvetransaction naming the app's contract as spender and setting a limit1. - 2
The allowance is recorded
The token contract stores the limit, which anyone can check with
allowance1. - 3
The app pulls tokens
When you trade or deposit, the app calls
transferFromto move tokens from your address1. - 4
You review later
The approval does not expire on its own; change it or set it to zero when you stop using the app.
Why do token standards matter in DeFi?
Shared standards are what let tokens snap together like building blocks. A lending app or a decentralised exchange can accept a new token on day one because it already knows how to call balanceOf and transferFrom1. Much of decentralised finance runs on tokens that represent something else: IOSCO describes liquidity provider (LP) tokens that represent a depositor's share of a pool, and governance tokens that give holders voting rights3. Stablecoins, covered in our stablecoins explainer, are fungible tokens as well.
Wrapped tokens created by a cross-chain bridge are tokens too, and the bridge that minted them is effectively their issuer. Knowing which contract issued a token matters as much as knowing which standard it follows.
What can go wrong with tokens that follow a standard?
A standard defines the shape of a token, not its behaviour or its backing. The interface says a contract must have a transfer function; it cannot stop the creator from adding other functions, such as minting more units or freezing addresses. And because name and symbol are free text chosen by whoever deploys the contract1, nothing prevents a copycat token from using a well-known name.
The standard itself flags one technical hazard. Changing an existing allowance directly from one non-zero value to another opens a known attack, so ERC-20 advises setting the allowance to zero first1.
Common beginner mistakes
Trusting the name or ticker
Anyone can create a token called anything. Check the contract address against the issuer's official website before buying or accepting it.
Granting unlimited approvals
Some apps ask for a very large allowance for convenience. If that app is later compromised, it can move up to that amount of your tokens.
Assuming an NFT includes the artwork
An NFT is a uniquely identified record on a blockchain2. A March 2024 report to Congress by the U.S. Patent and Trademark Office and Copyright Office notes that owning the token does not necessarily give the holder any intellectual property rights in the linked asset6. Check exactly what the seller is offering.
Ignoring decimals
Typing an amount into a tool that does not handle decimals can mean sending far more or less than intended.
Risk warning
A standard is not a seal of approval
Following ERC-20 or ERC-721 says nothing about whether a token is valuable, legitimate or safe, and tokens can lose most or all of their value. Read our risk disclosure and check who issued a token before dealing in it.
Frequently asked questions
Is ERC-20 a cryptocurrency?
No. ERC-20 is a set of rules for token contracts on Ethereum1. Many different tokens follow it, each with its own name, supply and issuer.
Are ERC-20 and EIP-20 the same thing?
Yes. On the EIP website the proposal is listed as EIP-20, titled "ERC-20: Token Standard", in the ERC category of the Standards Track1. The number is simply the proposal number.
Can one wallet hold ERC-20 tokens and NFTs?
Yes. Both live in contracts on the same blockchain and are linked to the same address. Whether a wallet displays them depends on whether it supports each standard.
Why do tokens use different numbers of decimals?
The creator picks the value, and the standard only says how apps should interpret it1. More decimals allow finer fractions; the choice does not change what the token is worth.
Are there token standards outside Ethereum?
Yes. Other blockchains define their own token formats. Because names and symbols are chosen freely1, the same name can appear on several networks, so check which chain and contract a token lives on before sending it.
The bottom line
Token standards are the reason one wallet can hold many different tokens and one exchange can list them without custom code. ERC-20 fixes how interchangeable tokens report balances and move, ERC-721 is a common standard for unique NFTs, and ERC-1155 combines the two. A standard tells you how a token works mechanically, never whether it is trustworthy, so the contract address and the issuer still need checking.
Sources
- ERC-20: Token Standard (EIP-20) — Ethereum Improvement Proposals (eips.ethereum.org), 2015 Primary source
- NISTIR 8301: Blockchain Networks: Token Design and Management Overview — National Institute of Standards and Technology, 2021 Primary source
- Final Report with Policy Recommendations for Decentralized Finance (DeFi) — International Organization of Securities Commissions (IOSCO), 2023 Primary source
- ERC-721: Non-Fungible Token Standard (EIP-721) — Ethereum Improvement Proposals (Entriken, Shirley, Evans, Sachs), 2018 Primary source
- ERC-1155: Multi Token Standard (EIP-1155) — Ethereum Improvement Proposals (Radomski et al.), 2018 Primary source
- Non-Fungible Tokens and Intellectual Property: A Report to Congress — U.S. Patent and Trademark Office and U.S. Copyright Office, 2024 Primary source
How we checked this page: every figure above links to the numbered source it came from. Spotted an error? Tell the desk — see our editorial policy.
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