Ethereum has revolutionized the blockchain space by enabling developers to create custom digital assets through standardized protocols. Among the most widely adopted standards are ERC-20 and ERC-721, which define how tokens behave on the Ethereum network. While both facilitate token creation, they serve fundamentally different purposes and use cases. This guide breaks down the core differences between these two standards, explains their technical foundations, and explores real-world applications to help you understand when and why each is used.
What Are ERC-20 and ERC-721?
Before diving into their differences, it's essential to understand what these standards are and how they function within the Ethereum ecosystem.
Understanding ERC-20: The Standard for Fungible Tokens
ERC-20 is the most widely recognized token standard on Ethereum. Introduced in 2015, it defines a set of rules that all fungible tokens must follow to ensure compatibility across wallets, exchanges, and decentralized applications (dApps).
Fungibility means that each token is interchangeable with another of the same type—just like traditional currency. For example, one US dollar bill can be exchanged for any other dollar bill without affecting value. Similarly, one ERC-20 token (like DAI or USDC) is equivalent to another of the same kind.
Key features of ERC-20 include:
- Interchangeability: Tokens are identical and can be freely swapped.
- Divisibility: Tokens can be split into smaller units (e.g., 1 ETH = 1,000,000,000 Gwei).
- Standardized functions: Includes methods for transferring tokens, checking balances, and approving spending.
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Because of its simplicity and broad support, ERC-20 has become the go-to standard for launching utility tokens, stablecoins, and governance tokens. As of now, over 180,000 ERC-20 tokens exist on the Ethereum blockchain.
Introducing ERC-721: The Standard for Non-Fungible Tokens (NFTs)
While ERC-20 works well for interchangeable assets, it falls short when dealing with unique items such as digital art, collectibles, or in-game assets. This limitation led to the creation of ERC-721, a standard specifically designed for non-fungible tokens (NFTs).
Unlike ERC-20 tokens, each ERC-721 token is unique and cannot be replaced by another. Think of it like a rare trading card or a one-of-a-kind painting—each has distinct characteristics and value.
Key features of ERC-721 include:
- Uniqueness: Every token has a unique identifier (Token ID).
- Non-divisibility: NFTs cannot be split into smaller parts.
- Ownership tracking: Enables clear proof of ownership and transfer history.
This standard powers popular NFT projects like CryptoKitties, Bored Ape Yacht Club, and digital art marketplaces such as OpenSea.
Key Differences Between ERC-20 and ERC-721
To better grasp how these standards differ, let’s compare them across several dimensions.
1. Fungibility vs. Uniqueness
The most fundamental distinction lies in fungibility:
- ERC-20 tokens are fungible: One token equals another in value and function.
- ERC-721 tokens are non-fungible: Each token is distinct and holds individual value based on attributes like rarity or provenance.
For example, if you lend someone an ERC-20 token, you expect repayment in the same type of token—not necessarily the exact same one. But with an ERC-721 token (like a digital artwork), returning a different NFT—even from the same collection—would not suffice.
2. Divisibility
Another major difference is divisibility:
- ERC-20 tokens can be divided into fractions (e.g., 0.5 DAI).
- ERC-721 tokens cannot be split—you own the entire asset or nothing at all.
This makes sense when considering their use cases: you might spend half a stablecoin, but you wouldn’t sell half a virtual land plot or half a rare collectible.
3. Use Cases and Applications
Each standard supports different types of applications:
| Standard | Common Use Cases |
|---|---|
| ERC-20 | Stablecoins (USDT), utility tokens (LINK), governance tokens (UNI), rewards programs |
| ERC-721 | Digital art, collectibles (CryptoPunks), gaming assets (Axie Infinity), real estate tokenization |
While ERC-20 powers much of DeFi (decentralized finance), ERC-721 drives innovation in digital ownership and creator economies.
Practical Example: Virtual Pets on Blockchain
Imagine a blockchain-based virtual pet game with 100 unique cats.
If the game uses ERC-20, each cat is represented as a uniform token. You could own “0.5 cats” or trade your cat for anyone else’s—because they’re all considered equal. This model doesn’t reflect individuality or scarcity.
However, if the game uses ERC-721, each cat has its own unique ID, traits (e.g., color, accessories), and ownership record. One cat might be extremely rare due to limited generation rules, making it valuable to collectors. In this case, no two cats are the same—even if they look similar.
This example illustrates why NFTs have transformed digital collectibles and gaming: they enable true digital scarcity and verifiable uniqueness.
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Frequently Asked Questions (FAQ)
What is the main difference between ERC-20 and ERC-721?
The primary difference is that ERC-20 tokens are fungible and divisible, making them ideal for currencies and utility tokens, while ERC-721 tokens are non-fungible and indivisible, designed for unique digital assets like NFTs.
Can an ERC-721 token ever be fungible?
No—by design, each ERC-721 token is unique and carries a distinct Token ID. However, newer standards like ERC-1155 allow both fungible and non-fungible tokens within the same contract, offering more flexibility.
Are all NFTs based on ERC-721?
Most early NFTs were built using ERC-721, but many modern platforms now use ERC-1155, which supports batch transfers and mixed asset types. Still, "NFT" commonly refers to any non-fungible token, regardless of the underlying standard.
Do I need special wallets for ERC-721 tokens?
Most modern crypto wallets (e.g., MetaMask, Trust Wallet) support both ERC-20 and ERC-721 tokens. However, NFTs may require specific interfaces (like OpenSea) to view metadata such as images or descriptions.
Can I convert an ERC-20 token into an ERC-721 token?
Not directly. Converting requires creating a new smart contract under the target standard and migrating assets accordingly. Some projects have done this during upgrades or rebranding efforts.
Why are there so many Ethereum token standards?
Different applications demand different properties—fungibility, divisibility, batch operations, etc. Standards evolve to meet new needs in DeFi, gaming, identity management, and more. Beyond ERC-20 and ERC-721, notable ones include ERC-777 (enhanced token interactions) and ERC-4626 (yield-bearing vaults).
Conclusion: Choosing the Right Standard
Both ERC-20 and ERC-721 play critical roles in the Ethereum ecosystem:
- Use ERC-20 when building interchangeable assets like payment tokens or rewards systems.
- Choose ERC-721 when uniqueness, ownership verification, or scarcity matters—such as in digital art or gaming.
Understanding these standards empowers developers, investors, and users to navigate the expanding world of blockchain-based assets with confidence.
As blockchain technology evolves, so too will token standards—enabling richer applications and deeper integration into everyday digital life.
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