The digital asset market continues to attract attention thanks to convenient tools for investment, value storage, and various transactions. One of the key components of the crypto industry is tokens. To ensure effective functioning and compatibility with various platforms and applications, special standards have been developed.

Here, we explain what a token standard is, the types of token standards available on the market, and how they differ from each other.

What is a Token?

In the crypto industry, a token is a digital asset that operates on a blockchain. Developers can endow tokens with various functionalities depending on the project's requirements and ecosystem.

A token can be compared to a digital representation of value. Depending on the type, it can be used as a simple cryptocurrency—a digital analog of traditional money; a digital equivalent of an asset, such as an ounce of gold. There are other types of tokens as well. Let's delve into them.

Main Types of Tokens

1. Utility Tokens: These give holders access to specific products or services within a project's ecosystem. For example, utility tokens can be used to pay fees, obtain discounts, or access certain features in decentralized applications.

2. Security Tokens: These provide the holder with rights to a share of the company's profits or assets. Such tokens can be compared to securities, like stocks.

3. Investment Tokens: Developers issue these tokens during ICOs to raise funds. Depending on the established rules, holders can earn from the token's price increase or claim a share of the issuer's profits.

What are Token Standards?

Token standards are sets of technical rules and specifications that define the structure and functionality of tokens issued on a particular blockchain platform. They establish general principles for creating and interacting with tokens, making digital assets more user-friendly and transparent for users and developers.

Token standards introduce unified sets of rules for aspects such as creation, transfer, storage, and management of tokens. They also define basic methods and functions that must be available for working with tokens, such as transfer, balance check, and other actions within the blockchain network.

Importance of Token Standards

A token standard is a set of rules, norms, and agreements that define how tokens will be issued and circulated. Such a "code" allows systems to automatically control all processes occurring with digital assets. Typically, token standards are created with a specific blockchain in mind.

Token standards play a vital role in the development of the cryptocurrency ecosystem and provide several key benefits:

1. Compatibility and Interoperability: Thanks to the "code," tokens issued on one blockchain platform can interact with applications and wallets that support this standard. Therefore, members of the crypto community can easily move assets between different platforms. The main condition is that the platforms must support the desired token standard. Token standards also provide developers with ready-made tools and resources to create various applications and services that will work with digital assets. The openness and transparency of the set of rules, which anyone can apply, contribute to the development of the blockchain industry.

2. Security and Reliability: Token standards make working with tokens safe. They establish rules for checks, data encryption, and transaction authenticity analysis, helping to prevent fraudulent operations and ensure asset security.

3. Ease of Use: Standards unify the process of working with tokens. Users receive a simple and convenient scheme, following which they can perform operations with assets. In simpler terms, thanks to unified rules—standards—users can easily transfer, store, and manage tokens without delving into the technical details of blockchain functioning.

Types of Tokens

Several common token standards exist in the market, each with its features and intended purposes. Let's look at them.

• ERC-20: The most popular token standard on the Ethereum blockchain, used to create custom coins. The simplicity of applying the standard for token creation was one reason for the ICO craze of 2017 and the flood of new coins in the market.

• ERC-721: An Ethereum standard intended for creating unique—non-fungible—tokens, each with a unique identifier. In the crypto community, these are known as NFTs. This standard is widely used in the gaming industry, digital art, and collectibles—areas where the proven uniqueness and originality of each token are valued.

• ERC-404: An Ethereum standard that combines the qualities of fungible ERC-20 tokens and non-fungible ERC-721 tokens. The goal of ERC-404 is to expand the application of NFTs in the decentralized finance (DeFi) market ecosystem. Technically, the standard is a smart contract template that combines ERC-721 and ERC-20 token operations.

• ERC-1155: An Ethereum standard that allows the creation of various types of tokens within one smart contract, thereby increasing its versatility. The standard simplifies the management and exchange of different blockchain assets by consolidating them.

• BEP-20: An analog of ERC-20 tokens designed to operate on the Binance Smart Chain (BSC), the blockchain of the largest crypto exchange, Binance. It is used to create tokens on the trading platform's blockchain.

• BEP2: The token standard of Binance's first blockchain, Binance Chain or BNB Beacon Chain. It was needed to create tokens on the crypto exchange's blockchain. BEP2 is less functional than BEP-20; for example, it does not support batch data transfer. Additionally, BEP2 has worse scalability parameters.

• BRC-20: An experimental token standard on the blockchain of the most capitalized cryptocurrency, Bitcoin. Its emergence is related to the Ordinals crypto project, which allows creating NFTs on the Bitcoin blockchain.

• TRC-10: The primary technical standard of native tokens on the TRON blockchain, providing basic functions for working with tokens on this platform. These assets are intended for value transfer.

• TRC-20: Another TRON token standard—an analog of ERC-20. It is used to create tokens on the project's blockchain. TRC-20 is more functional than TRC-10, and operations with such tokens are cheaper.

• TRC721: TRON's standard for creating non-fungible tokens on the project's blockchain. Analogous to ERC-721.

• SPL (Solana Program Library): The token standard on the Solana blockchain, providing high speed and low fees for various operations. Technically, it is an analog of ERC-20.

Conclusion

Token standards are an essential "set of rules" that forms the norms for issuing and circulating digital assets. Without them, the crypto market would be chaotic, and crypto operations would not be as convenient and secure.

This "code" simplifies the process of creating, transferring, and managing tokens, enhancing the ease of using digital assets and stimulating the development of new crypto services.