rewrite this title ERC-20 vs ERC-721 vs ERC-6551: What Do All These Crypto Standards Mean?

When you dive into the world of cryptocurrency, you will often see strange terms like ERC‑20, ERC‑721, or even ERC‑6551. At first, they look like secret codes. In reality, they are token standards on the Ethereum blockchain. These standards act like rulebooks for how different tokens should behave. Understanding these rules is important if you are curious about Ethereum smart contracts, NFTs, gaming, or DeFi applications.

If you have ever traded crypto, bought an NFT, or played a blockchain game, you have probably used at least one of these standards without realizing it. Let us break down what each of these token standards means.

Fungible vs Non-Fungible Tokens

Before we look at ERC‑20, ERC‑721, or ERC‑6551, it helps to understand the difference between fungible and non‑fungible tokens.

Fungible tokens are all the same and can be swapped equally. A simple example is a dollar bill. If you borrow a dollar from a friend, you can pay them back with any other dollar, and they most likely do not care which one, because all dollars have the same value. In crypto, tokens like USDC or DAI are fungible, and every token is identical in value and function.

Non‑fungible tokens, or NFTs, are unique. Imagine a rare trading card or a limited‑edition sneaker; no two are exactly alike. Owning one is different from owning another, even if they are part of the same collection. This is why NFTs exploded in popularity for art, collectibles, and in‑game items; each NFT can be verified as one‑of‑a‑kind on the blockchain.

These two categories form the basis of most Ethereum token standards.

ERC‑20: The Standard for Fungible Tokens

The first widely used token standard on Ethereum is ERC‑20, which defines how fungible tokens should behave. When you hear about tokens like Chainlink (LINK), Uniswap (UNI), or USDC, they all follow ERC‑20 rules.

ERC‑20 tokens are popular because they can interact with Ethereum smart contracts in predictable ways. Wallets, exchanges, and DeFi apps know exactly how to handle them. This standard allows you to:

Send and receive tokens easilyTrack balances across walletsUse tokens in DeFi protocols like lending, trading, and staking

Without ERC‑20, the Ethereum ecosystem would be much more chaotic because every token might work differently.

ERC‑721: The Birth of NFTs

While ERC‑20 made fungible tokens easy to use, ERC‑721 opened the door to non‑fungible tokens. This standard became the foundation of the NFT boom.

An ERC‑721 token is unique and cannot be swapped one‑to‑one with another; think of CryptoPunks, Bored Ape Yacht Club, or Decentraland land parcels. Each token represents a unique item or piece of art.

Wallets and marketplaces like OpenSea can easily interpret ERC‑721 tokens because the standard specifies how to display ownership and metadata. This metadata includes things like the NFT’s image link, traits, and history.

ERC‑721 tokens also power blockchain gaming and virtual identity systems, and when you own an NFT character or weapon, the game can verify that it belongs to you and not someone else.

How Wallets Interpret Different Standards

Wallets are the bridges between users and blockchain tokens, and they need to understand each token’s standard to display information correctly.

If a wallet sees an ERC‑20 token, it knows to show a balance like “100 LINK.” Every token is identical, so there is no need for extra details.

If the wallet sees an ERC‑721 NFT, it knows to check for unique information. It might display the NFT’s image, its collection name, and any traits it has.

Modern wallets now also support ERC‑1155, a flexible standard that can handle both fungible and non‑fungible assets in a single contract. For example, in a game, you might have 100 identical gold coins (fungible) and 1 rare sword (non‑fungible) stored together.

ERC‑6551 takes things a step further, as we will see next.

ERC‑6551: NFTs That Can Own Assets

The newest and most exciting standard in this space is ERC‑6551, and it is sometimes called the “Token Bound Account” standard. This allows an NFT to have its own wallet and interact with other tokens.

If you have an NFT character in a game, with ERC‑6551, that NFT can hold its own inventory of ERC‑20 tokens or even other NFTs. Your character could carry gold coins, weapons, or skins, all of which are tracked directly on the blockchain.

This standard changes how we think about digital identity and ownership in Web3, because instead of a wallet belonging solely to a human, each NFT can act like a mini‑wallet. This could transform blockchain gaming, metaverse assets, and even decentralized identity systems.

ERC‑6551 is still new, but it opens the door to use cases that ERC‑20 and ERC‑721 could not handle on their own.

Use Cases: DeFi, NFTs, Gaming, and Identity

Each token standard has its strengths and serves a different part of the Web3 world.

In DeFi, ERC‑20 is still the most important standard, and it’s used for most coins people trade, lend, or use to earn interest. Stablecoins like USDC and governance tokens for DAOs are all built on ERC‑20. Without this standard, DeFi apps like Uniswap, Aave, or Compound wouldn’t work the same way. Everyone follows the same rules, which keeps the system smooth and safe.

For NFTs, ERC‑721 is the standard everyone knows; it was the first way to make unique tokens that could be collected, sold, and shown off. Whether it’s a piece of digital art, a profile picture, or a virtual sneaker, ERC‑721 helps prove who owns what. Marketplaces like OpenSea and Blur rely on this standard to display rarity and track ownership.

In gaming, ERC‑1155 and ERC‑6551 are opening new doors. ERC‑1155 lets developers bundle different types of items into one smart contract, like weapons, skins, or tokens. This makes it easier and cheaper to build games on the blockchain. ERC‑6551 takes this a step further by giving NFTs their own wallets. That means a game character can own gear, currency, and even other NFTs. This brings video game avatars to life in a whole new way, where your character is not just data but a real on-chain entity.

For identity, ERC‑6551 could be a game-changer. Just imagine your NFT not just being a profile picture, but a full digital identity. It could carry your credentials, proof of skills, access passes, and membership NFTs. This would let people log into apps, prove who they are, or show their reputation without sharing personal data and in the future, social media or job platforms could be powered by these kinds of smart, self-owned identities.

Why Token Standards Matter

Token standards are the hidden glue that keeps the Ethereum ecosystem running smoothly because they let wallets, marketplaces, and smart contracts speak the same language. If everyone invented their own custom token code, your wallet would not know how to display balances, and exchanges could not easily support thousands of tokens. Token standards reduce complexity and make the network more reliable.

They also protect users, like when a token follows a known standard, developers and auditors can check that it behaves as expected. This reduces the risk of bugs or lost funds that could hamper trust and complicate how users interact with the larger ecosystem.

Finally, token standards encourage innovation, like when ERC‑20 became popular, a wave of DeFi apps appeared. ERC‑721 gave rise to the NFT boom; ERC‑6551 might be the spark for new gaming and identity solutions we have not even imagined yet.

In Summary

ERC‑20, ERC‑721, and ERC‑6551 are more than just random letters and numbers. They are the rulebooks that shape how tokens live on Ethereum, and they decide whether a token is fungible or unique, how wallets read it, and what it can do in the growing Web3 world.

Fungible tokens like ERC‑20 power the financial side of crypto, and non‑fungible tokens like ERC‑721 bring art, collectibles, and ownership to life. New standards like ERC‑6551 combine the best of both worlds by giving NFTs wallets of their own.

As blockchain technology grows, token standards will continue to guide how developers create new apps and how users experience digital ownership. Understanding these standards today helps you see where Web3 is headed tomorrow.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence. 

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