ERC- Ethereum Request for Comment
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It is a set of rules and regulations that creates a blueprint for Ethereum based tokens. This blueprint ensures that all contract, accounts, and wallets knows exactly what each token is and what to do with it. It also makes it lot easier for developers to create tokens as they don’t need to start from ground zero every time. It is undeniable that the ERC standard changed the face of Ethereum and cryptocurrency.
The developers submit new ERC policies through Ethereum Improvement proposal which is known as EIP (Ethereum improvement proposal). It is the process that the Ethereum community uses to review the document that developer created using the ERC standards. So, there are different ERC standards like ERC-20, ERC-721, ERC-223, ERC-777, ERC-1155, etc.
How ERC Works?
The developers submit the new ERC policies through Ethereum improvement proposal, then the Ethereum community reviews these documents using EIP. After reviewing the community may ask for revision or comment in favour or oppose. After acceptance the developer implements it.
ERC-20
Ethereum allows you to create your own cryptocurrency or token that can be purchased with ethers. ERC 20 is just a standard that specifies how these tokens work so that they are compatible with other platforms like cryptocurrencies exchanges. They are used in fungible assets.
ERC-721
ERC-721 is the essential set of rules for NFTs, defining them as a way to identify something or someone in a unique way. It is basically a standard for building NFTs on Ethereum. NFTs have unique tokens and have a different value from other token that are part of same smart contract. The main difference between ERC-20 and ERC-721 is that ERC-20 is fungible whereas ERC-721 is non-fungible.
ERC-1155
It is very similar to ERC-721. In ERC-721, for each and every fungible and non-fungible token require a different smart contract i.e. let's take an example in gaming industry, where Massively multiplayer online games contain tens of thousands of items- Armor, weapon, shields etc. so each player can collect and exchange with one another. Some items like coins are fungible while others like a sword are non-fungible. On a blockchain, every item is a token. In ERC-721 each item requires separate smart contract. This problem was solved through ERC-1155.
ERC-223
The use ERC-20 is significant. But due to one critical ERC-20 design flaw many users lost their coins when they sent their tokens to a smart contract, they used to transfer tokens to a conventional wallet. This issues is solved by ERC-223 by allowing users to move tokens to smart contracts and wallets that provide the same purpose. Since the transactions require only one step rather than two, it is more efficient than ERC-20.
ERC-777
ERC-777 are used in fungible tokens and it is more centered on enabling complex part of communication while exchanging tokens. Basically, it brings tokens and ether closer together by providing important fields. The most significant feature is that it can receive hooks. Hook is like a reaction which is called when tokens are sent to it, so that contracts can react to that tokens.