Ethereum has revolutionized the digital asset landscape by enabling developers to create custom tokens on its blockchain. Among the many token standards available, ERC-20 and ERC-721 stand out as two of the most widely adopted. While both operate on the Ethereum network, they serve fundamentally different purposes and power distinct types of applications—from cryptocurrencies to digital collectibles.
In this guide, we’ll explore the core differences between ERC-20 and ERC-721, how they work, where they’re used, and why choosing the right standard matters for developers and users alike.
What Are ERC-20 and ERC-721?
Before diving into their differences, let’s clarify what these standards actually are.
What Is ERC-20?
ERC-20 is a technical standard used for implementing fungible tokens on the Ethereum blockchain. Introduced in 2015, it quickly became the foundation for most initial coin offerings (ICOs) and decentralized finance (DeFi) projects.
Fungibility means each token is interchangeable and indistinguishable from another—just like traditional money. For example, one dollar bill has the same value and function as any other dollar bill. Similarly, one ERC-20 token (like DAI or USDC) is equivalent to another of the same type.
The ERC-20 standard defines a set of rules that all compliant tokens must follow, including:
- Total supply
- Token name and symbol
- Decimals (e.g., 18 for Ether)
- Transfer functions
- Balance checking
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This uniformity ensures interoperability across wallets, exchanges, and smart contracts. As a result, over 180,000 ERC-20 tokens have been created to date, powering everything from stablecoins to governance tokens.
What Is ERC-721?
While ERC-20 handles interchangeable assets, ERC-721 was designed for non-fungible tokens (NFTs)—digital assets that are unique and indivisible.
Each ERC-721 token has a distinct identifier (Token ID), making it one-of-a-kind. Think of it like a rare trading card or a piece of real estate: no two are exactly alike, even if they appear similar.
ERC-721 emerged in 2018 with the rise of blockchain-based games like CryptoKitties, where each virtual cat was represented by a unique NFT. The standard includes functions for:
- Tracking ownership
- Transferring individual tokens
- Querying metadata (like image or description)
- Ensuring uniqueness via Token ID
Because each token is unique, ERC-721 powers use cases such as:
- Digital art and collectibles
- In-game items
- Virtual land
- Identity verification
- Tokenized real-world assets
Key Differences Between ERC-20 and ERC-721
To better understand when to use each standard, let’s break down their core distinctions.
1. Fungibility
| Feature | ERC-20 | ERC-721 |
|---|---|---|
| Interchangeable? | Yes | No |
| Value Uniformity | All tokens have equal value | Each token has unique value |
ERC-20 tokens are fungible: you can swap one for another without any difference in value or function.
ERC-721 tokens are non-fungible: each token represents a unique asset. Swapping two NFTs only makes sense if both parties agree on their relative worth.
2. Divisibility
Another major difference lies in divisibility.
- ERC-20 tokens can be divided into smaller units. For example, you can send 0.05 ETH or hold 10.5 DAI.
- ERC-721 tokens cannot be split. You either own the entire NFT or none of it—just like owning a physical painting.
This makes ERC-721 ideal for representing whole assets, while ERC-20 excels in scenarios requiring fractional transactions.
3. Use Case Applications
| Standard | Common Use Cases |
|---|---|
| ERC-20 | Cryptocurrencies, DeFi tokens, utility tokens, stablecoins |
| ERC-721 | NFTs, digital collectibles, game items, digital identity |
For instance:
- A decentralized exchange might use an ERC-20 token for staking rewards.
- An online game might issue ERC-721 tokens to represent legendary swords or rare characters.
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Practical Example: Virtual Pets on Blockchain
Imagine a blockchain-based virtual pet app with 100 digital cats.
If the app uses ERC-20, each cat is treated as a fungible unit:
- Your cat = My cat (interchangeable)
- You could own half a cat (divisible)
- No unique traits or IDs
But if it uses ERC-721, each cat becomes unique:
- Each has a unique Token ID
- One might be a rare golden cat; another a common tabby
- Cannot be divided—you own one whole cat or none
This is precisely what made CryptoKitties go viral in 2017. Players bred and traded unique digital cats, some selling for tens of thousands of dollars—all powered by the ERC-721 standard.
Why These Standards Matter
Standards like ERC-20 and ERC-721 bring consistency and compatibility to Ethereum’s ecosystem. They allow:
- Wallets to support thousands of tokens automatically
- Exchanges to list new tokens with minimal integration effort
- Developers to build interoperable dApps (decentralized applications)
Without these standards, every project would need custom code to interact with others—slowing innovation and increasing risk.
Moreover, standards enable composability—the ability to “plug and play” different protocols together—fueling the rapid growth of DeFi and Web3.
Frequently Asked Questions (FAQ)
Q: Can an ERC-721 token ever be fungible?
A: Not by design. However, solutions like fractional NFTs allow splitting ownership of an NFT among multiple users using ERC-20 tokens. This doesn’t make the NFT itself fungible but enables shared ownership.
Q: Are all NFTs based on ERC-721?
A: Most early NFTs used ERC-721, but newer standards like ERC-1155 allow both fungible and non-fungible tokens in a single contract—ideal for games with mixed asset types.
Q: Can I store both ERC-20 and ERC-721 in the same wallet?
A: Yes! Most modern crypto wallets (like MetaMask) support multiple token standards, letting you manage coins, tokens, and NFTs in one place.
Q: Which standard is more secure?
A: Security depends on implementation, not the standard itself. Both ERC-20 and ERC-721 are well-audited and widely trusted when properly coded.
Q: How do I create an ERC-20 or ERC-721 token?
A: Developers can use tools like OpenZeppelin to deploy secure smart contracts. While coding knowledge is required, templates make the process accessible even to beginners.
Final Thoughts
Understanding the difference between ERC-20 and ERC-721 is essential for anyone exploring Ethereum’s ecosystem. Whether you're investing in DeFi, collecting digital art, or building blockchain applications, knowing which standard applies—and why—helps you make informed decisions.
In short:
- Use ERC-20 for interchangeable, divisible assets like currency or utility tokens.
- Use ERC-721 for unique, indivisible assets like collectibles or digital identity markers.
As blockchain technology evolves, so will token standards—but these two remain foundational pillars of Web3 innovation.
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ERC-20, ERC-721, Ethereum token standards, fungible tokens, non-fungible tokens, NFT, blockchain, smart contracts