Blockchain Technology is slowly taking over the world. People have finally started to understand the issues with centralization, and thus the importance of this one paper by the anonymous entity Satoshi Nakamoto, which started this revolution of cryptography and decentralization.
In 2015, with the Ethereum network going live, came a whole new world of possibilities in the decentralized space. The EVM machine which can execute smart contract was a game-changer. Consequently, the introduction of smart contracts made developers and experts all around, build platforms take on, probably the biggest “Ponzi scheme” of all times: The Traditional Financial System ( or fiat system ).
The rise of smart contracts, allowed users to create special contracts, which can act like currencies. A lot of these got released, and consequently, it was becoming hard to keep track of all these different standards of writing virtual currencies smart contracts on the network. Hence came in the proposal of ERC20 Standards: https://eips.ethereum.org/EIPS/eip-20
This standardized how a token contract should look, resulting in the seamless integration of tokens in different protocols and crypto-wallets. This eventually gave birth to some amazing solutions in the decentralized finance or DeFi space like Uniswap, Aave, MakerDAO, etc. Today, billions of dollars worth of crypto are traded in this space.
So, what exactly do ERC20 Tokens represent?
ERC20 tokens are basically what we will call “Fungible Tokens”. Fungibility is the ability of a good or asset to be readily interchanged for another of like kind. Think of two 1 dollar notes. Both the notes are different, but their value is exactly the same. The same is the case in an ERC20 token. Each token is worth the exact same as the other tokens in value.
This consequently resulted in several applications of ERC20 tokens like stablecoins, governance tokens, but let’s not get into that in this post.
Ok, so the significance of ERC20 is clear, lets now get into ERC721.
So, what exactly does ERC721 represents?
Simple, an entity. It can be anything, which has its own value. An artwork, a music album, an agreement contract, etc. No two ERC721 tokens are the same when it comes to value.
ERC721 are what are called “Non-Fungible tokens”. Think of two ERC721 representing 2 soccer player:
First represents a high school student and one representing some popular figure like Cristiano Ronaldo. So now it’s clear that the card representing Cristiano would be worth way more than the card of the Highschool student.
But the big question, which stops a lot of people from getting into NFT is why even bother to buy a “digital entity” in the first place. The answer is pretty simple, think of it like this: Why does Mona Lisa cost so much and is considered so much valuable ?. The answer is as simple as that, people consider it to be a valuable piece of art that adds value to its existence.
The same is the case with NFTs. An NFT acts as proof of ownership over a piece of digital content or a digital asset.NFT’s are unique digital tokens that represent specific digital assets that can be bought, sold, and traded. The digital artists can ensure that the value of the art that they produce is maintained during its sale and also any future royalties that they may be owed.
“CryptoPunks” and “CryptoKitties” are two of the very first projects in this space. Some NFT art sites now allow the option of buying carbon offsets when making NFT purchases or contributing a percentage of revenue to offset programs
Check out https://eips.ethereum.org/EIPS/eip-721 for standard specifications.
ERC-1155 is what we will call the best of both worlds.
ERC-1155 allows you to create Fungible, Non-Fungible, and Semi-Fungible in one single token standard. Both Fungible and Non-Fungible tokens can be created using the same standard.
So why ERC-1155?
Take, for example, Mona Lisa again. There is one Mona Lisa artwork, which is worth millions of dollars and can be represented by Non-Fungible ERC-1155. Now there can also be several other copies of the artwork, which can be sold as Fungible ERC1155. The ERC1155 gives accessibility, simplicity, and efficiency on the buyer side.
Another example use case can be games. You earn points and buy items using these points in a game. At the same time, you can exchange items too. The “items” can be represented by Non-Fungible ERC-1155 and “points” can be represented as Fungible ERC-1155.
Check out https://eips.ethereum.org/EIPS/eip-1155 for the standard specifications.
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