The Ethereum blockchain has revolutionized digital assets by enabling developers to create and manage tokens through standardized protocols. Among these, ERC20 and ERC721 stand out as foundational standards shaping the future of decentralized finance (DeFi), non-fungible tokens (NFTs), and blockchain-based applications. While both operate on the Ethereum network, they serve fundamentally different purposes and cater to distinct use cases.
This article dives deep into the core differences between ERC20 and ERC721, explores their technical foundations, and explains how each contributes uniquely to the evolving landscape of digital ownership and value exchange.
What Is an ERC Token?
Before comparing ERC20 and ERC721, it’s essential to understand what "ERC" means. ERC stands for Ethereum Request for Comment — a protocol used by developers to propose improvements or new functionalities on the Ethereum platform. Once reviewed and accepted by the community, an ERC becomes a formal standard.
These standards ensure compatibility across wallets, exchanges, and decentralized applications (dApps). The most widely adopted among them are ERC20 for fungible tokens and ERC721 for non-fungible tokens.
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ERC20: The Standard for Fungible Tokens
ERC20 is the most popular token standard on Ethereum. It defines a set of rules that all fungible tokens must follow, allowing seamless interaction across platforms. A fungible asset is one where each unit is identical and interchangeable — like traditional currency or cryptocurrencies such as ETH or DAI.
Key Features of ERC20
The ERC20 standard requires the implementation of several mandatory functions:
- Total Supply: The total number of tokens in circulation.
- BalanceOf: Retrieves the token balance of a specific address.
- Transfer: Enables users to send tokens from one address to another.
- Approve: Allows a third-party address (like an exchange) to spend a certain amount of tokens on behalf of the owner.
Additionally, there are optional metadata fields:
- Token Name (e.g., “ChainLink”)
- Symbol (e.g., “LINK”)
- Decimals (up to 18 digits for fractional divisibility)
Thanks to its simplicity and interoperability, ERC20 has been adopted by thousands of projects, including major DeFi protocols, stablecoins, and utility tokens. Its widespread support makes it easy to list on exchanges, integrate into wallets, and use in smart contracts.
ERC721: The Birth of Non-Fungible Tokens
While ERC20 powers interchangeable digital assets, ERC721 introduced a groundbreaking concept: non-fungibility. Each ERC721 token is unique and cannot be directly exchanged 1:1 with another — similar to trading cards, real estate, or digital art.
This standard gained global attention in 2017 with the launch of CryptoKitties, a game where players collect and breed digital cats. At its peak, CryptoKitties accounted for nearly 25% of Ethereum network traffic, showcasing the potential of NFTs.
What Makes ERC721 Unique?
Unlike ERC20, which tracks balances per address, ERC721 tracks individual token ownership. Each token has a unique identifier (ID), ensuring no two tokens are the same. This enables verifiable scarcity and provenance — critical features for digital collectibles, gaming items, and intellectual property rights.
Required Events in ERC721
To manage ownership and permissions effectively, ERC721 mandates three key events:
- Transfer: Triggered when a token changes ownership.
- Approval: Emitted when a user authorizes another address to transfer a specific token.
- ApprovalForAll: Allows a user to grant full control over all their ERC721 tokens to another address (commonly used in NFT marketplaces).
Despite being more complex than ERC20, the structure of ERC721 remains developer-friendly and compatible with existing Ethereum infrastructure. Users can store these tokens in standard wallets like MetaMask and trade them on platforms like OpenSea.
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Core Differences Between ERC20 and ERC721
| Aspect | ERC20 | ERC721 |
|---|---|---|
| Fungibility | Fungible (interchangeable) | Non-fungible (unique) |
| Use Cases | Cryptocurrencies, utility tokens, stablecoins | Digital art, collectibles, game items |
| Token Identification | Balance-based per address | Unique ID per token |
| Divisibility | Yes (up to 18 decimals) | No — whole units only |
| Ownership Tracking | Total balance per address | Individual token ownership |
| Interoperability | High — widely supported across DeFi | Growing — dominant in NFT ecosystems |
While both standards share similar foundational logic — such as transfer mechanisms and event emissions — their application diverges significantly based on asset type.
Real-World Applications and Industry Impact
ERC20 in Action
- Stablecoins: USDT, USDC, and DAI use the ERC20 standard to maintain price stability while operating on Ethereum.
- Governance Tokens: Projects like Uniswap (UNI) and Aave (AAVE) issue ERC20 tokens for decentralized voting.
- Yield Farming & Staking: Many DeFi protocols reward users with ERC20 tokens for providing liquidity.
ERC721 in Action
- Digital Art & NFT Marketplaces: Platforms like Rarible and Foundation rely on ERC721 to authenticate and sell digital artwork.
- Gaming Assets: Games like Axie Infinity use NFTs to represent characters, land, and equipment that players truly own.
- Real-World Asset Tokenization: Luxury goods, real estate, and even concert tickets are being represented as ERC721 tokens for secure, transparent ownership.
Frequently Asked Questions (FAQ)
What is the main difference between ERC20 and ERC721?
The primary difference lies in fungibility. ERC20 tokens are interchangeable — one token equals another. In contrast, each ERC721 token is unique and carries distinct properties, making them ideal for representing rare or one-of-a-kind digital assets.
Can I store both ERC20 and ERC721 tokens in the same wallet?
Yes. Most modern cryptocurrency wallets — including MetaMask, Trust Wallet, and Coinbase Wallet — support both standards. They automatically detect and display your fungible and non-fungible assets separately.
Are ERC721 tokens divisible like ERC20?
No. ERC721 tokens are indivisible — you cannot send “0.5” of an NFT. However, emerging concepts like fractional NFTs allow multiple people to own shares of a single NFT using auxiliary ERC20 tokens.
Why did CryptoKitties make ERC721 famous?
CryptoKitties was one of the first mainstream applications to use the ERC721 standard. Its viral success demonstrated how blockchain could enable true digital ownership of unique items, sparking widespread interest in NFTs.
Can a project use both ERC20 and ERC721 together?
Absolutely. Many projects combine both standards. For example, a game might use ERC721 for unique player avatars and weapons while using an ERC20 token as in-game currency.
Is one standard better than the other?
Neither is inherently superior — they serve different purposes. Use ERC20 for interchangeable assets, and ERC721 for unique digital items. Choosing the right standard depends on your project's goals.
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Conclusion
ERC20 and ERC721 are not competitors but complementary forces driving innovation across the Ethereum ecosystem. While ERC20 powers the world of interchangeable value, enabling scalable financial systems and global transactions, ERC721 unlocks the potential of digital uniqueness, transforming how we think about ownership in the virtual world.
As blockchain technology evolves, understanding these core standards becomes crucial for developers, investors, creators, and users alike. Whether you're building a DeFi protocol or minting your first NFT, knowing when and how to use ERC20 or ERC721 ensures your project aligns with best practices and leverages Ethereum’s full potential.
With continued growth in both DeFi and NFT spaces, these standards will remain central to the future of decentralized applications — shaping a more open, transparent, and user-owned internet.