The Hidden Rules That Make Web3 Work
Web3 can feel like a sprawling city built overnight—wallets, exchanges, NFTs, DeFi, games, DAOs, bridges, marketplaces, and countless experimental ideas stacked on top of one another. Yet most of it works together surprisingly well. You can move a token from one wallet to another, trade it on an exchange, deposit it into a DeFi protocol, or display it in a portfolio app—often without the original creator doing anything special. That interoperability is not magic. It’s standards. Token standards are shared rulebooks for how smart contracts represent and manage assets on a blockchain. If you follow the rulebook, everyone else knows how to talk to your token. Wallets can show balances. Exchanges can list it. Apps can transfer it. Analytics tools can track it. Standards are the reason “plug and play” exists in a world where nobody is in charge. This article walks through the most important Ethereum token standards—ERC-20 and ERC-721—and then goes beyond them into the standards that quietly upgraded how tokens behave, how NFTs scale, and how modern apps handle ownership. If you’ve ever wondered why one token feels like cash and another feels like a collectible, the answer is almost always hiding in the standard.
What an ERC Really Means
“ERC” stands for Ethereum Request for Comments, a name inspired by the internet’s own tradition of publishing shared protocols. An ERC is a proposal for a standard interface—essentially a set of functions and events that a smart contract should implement.
When a proposal is accepted and finalized, it becomes part of the broader ecosystem’s expectations. Developers build around it. Wallets and apps support it. Tooling assumes it exists. A standard is less like a law and more like a language. You can refuse to speak it, but you’ll be hard to understand.
The genius of token standards is that they focus on interfaces, not implementations. Two ERC-20 tokens can be wildly different internally—different mint rules, governance mechanics, or fee models—yet still behave the same way to a wallet that asks, “What’s the balance?” or “Transfer this amount.”
Fungible vs. Non-Fungible: The First Big Fork
Before diving into specifics, it helps to lock in the basic distinction token standards exist to encode. A fungible token is interchangeable. One unit is equivalent to any other unit of the same token, the way a dollar bill is interchangeable with another dollar bill. Fungible tokens are ideal for currencies, governance tokens, stablecoins, and utility tokens.
A non-fungible token (NFT) is unique. Each token has a distinct identity, typically represented by an ID. NFTs are ideal for collectibles, art, membership passes, in-game items, and anything where “this specific one” matters. Token standards formalize these behaviors. ERC-20 became the blueprint for fungible tokens. ERC-721 became the blueprint for NFTs. Everything beyond that is largely about efficiency, expressiveness, and developer ergonomics.
ERC-20: The Standard That Turned Tokens Into LEGO Bricks
ERC-20 is the most influential token standard in crypto history. It defined a simple, consistent way for smart contracts to represent fungible balances and transfers. Once ERC-20 took hold, a wave of innovation followed because developers no longer had to reinvent basic token behavior every time. They could build on top of a known interface, and the ecosystem would immediately understand their asset.
At a high level, ERC-20 specifies how to track balances, how to move tokens, and how third parties can move tokens on a user’s behalf. The last part—delegated transfers—is what unlocked DeFi. When you “approve” a DeFi protocol to spend your tokens, you are using the ERC-20 allowance mechanism.
The standard made tokens composable. A DEX could support thousands of tokens without custom integrations. Wallets could display token balances for any ERC-20. Lending protocols could accept new assets with minimal work. In Web3 terms, ERC-20 made money programmable—and broadly compatible.
The ERC-20 User Experience: Balance, Transfer, Approve
If you’ve used any DeFi app, you’ve felt ERC-20 in your fingertips. First you approve a contract to spend a token. Then you execute the actual action: swap, deposit, stake, or repay. That two-step dance exists because ERC-20 separates permission from movement.
This is powerful, but it also introduces risk. Approvals can be overly generous, and malicious contracts can exploit them if users approve blindly. Over time, the ecosystem learned to treat allowances as something you manage, not something you forget. Many wallets now visualize approvals because they are a standard power feature, not an edge-case. ERC-20’s simplicity is its strength, but it also shaped a lot of the friction and learning curve of Web3. When you understand allowances, you understand a big piece of why DeFi works—and how it sometimes breaks.
ERC-721: The Standard That Made Digital Uniqueness Portable
If ERC-20 standardized programmable money, ERC-721 standardized digital uniqueness. It introduced the idea that a token could represent an individual item with its own identity, and that identity could be transferred, owned, and tracked on-chain.
ERC-721 tokens are non-fungible by design. Instead of holding “100 units,” you hold token IDs: maybe #1, #42, and #9007. Each token ID can map to metadata—often an image, attributes, and descriptive info—and that metadata can be used by marketplaces, galleries, and apps to render the NFT.
The key cultural leap was portability. An NFT minted by one contract could be displayed in many different contexts, because the standard gave everyone a shared way to query ownership and basic token data. That’s why NFTs exploded. They were not just art files; they were interoperable identity objects that could move across the internet.
Metadata: Where Art Meets Infrastructure
NFTs often live at the intersection of on-chain ownership and off-chain media. The standard doesn’t require the image to be stored on-chain. It requires a consistent way to point to metadata. That metadata typically includes a name, description, attributes, and a link to the media.
This architecture is both elegant and controversial. It allows NFTs to scale without storing huge files on-chain, but it also creates dependency on how the metadata is hosted. Some projects use decentralized storage systems; others use traditional servers. The more decentralized the storage, the more durable the NFT’s media tends to be. The more centralized the storage, the more fragile it can become. The standard created the path. Projects choose how robust to make the rest of the journey.
ERC-1155: One Contract, Many Token Types
As NFT ecosystems grew, developers ran into a practical limitation. ERC-721 is great for unique items, but it can be inefficient for games and apps that need many assets—some unique, some semi-fungible, some fully fungible—often transferred in batches.
ERC-1155 emerged as a more flexible standard that can represent multiple token types in a single contract. It supports both fungible and non-fungible assets, and it allows batch transfers. That makes it especially useful for gaming inventories, marketplace items, and any scenario where moving many assets at once should be cheaper and simpler.
Culturally, ERC-1155 helped push NFTs beyond profile pictures and art into more utility-driven spaces. It made tokens feel less like individual museum pieces and more like items in a real economy.
ERC-777 and the Dream of Smarter Tokens
ERC-20 is intentionally minimal. But sometimes developers want richer behavior: hooks that notify a contract when tokens are received, or safer mechanics around approvals and transfers. ERC-777 explored a more advanced token interface, including features that can improve UX and composability in certain contexts.
The trade-off is complexity. The more powerful a token becomes, the more careful you must be about security and interactions with other contracts. In Web3, every additional feature is another possible edge-case. Even if you never use ERC-777 directly, its existence shaped how developers think: tokens are not just balances; they can be reactive components that integrate more deeply with applications.
Permit and Gasless Approvals: The UX Upgrade You’ve Felt
One of the most meaningful “beyond ERC-20” evolutions isn’t a brand-new token type—it’s a better way to grant permission. Many users dislike the approve-then-act pattern because it takes extra time and extra gas fees.
“Permit”-style approvals allow a user to sign an approval off-chain, then have the app submit it on-chain as part of a single transaction. This enables smoother onboarding and can reduce friction for actions like swaps and deposits.
From a cultural standpoint, permit helped Web3 feel less clunky. It shifted some power back to signatures and made “one-click” experiences more realistic without compromising the underlying security model.
Soulbound and Identity-Style Tokens
Not every token is meant to be traded. As Web3 matured, people began exploring tokens that represent identity, membership, achievements, or credentials—assets that gain meaning precisely because they are not transferable.
The idea often shows up under labels like “soulbound” tokens: tokens that stay with a wallet and signal reputation or participation. Whether or not this becomes a dominant primitive, the direction is clear. Token standards are not only about markets. They’re also about identity layers that the internet can verify. This expands the scope of token standards from finance and collectibles into social infrastructure.
Why Standards Matter More Than Any Single Token
Token standards are not glamorous, but they are the rails that keep the ecosystem coherent. A standard creates predictable behavior. Predictable behavior enables tooling. Tooling enables adoption. Adoption attracts builders. Builders create new use cases. Those use cases feed back into new standards.
This is how Web3 evolves in practice. Not through one perfect invention, but through shared agreements that let millions of independent developers build in the same city without constantly colliding.
When a standard becomes widely adopted, it turns into a promise. The promise is: “If you follow this, the world will understand you.”
Choosing the Right Standard: The Practical Lens
If you’re building, the standard you choose depends on what you’re representing. If it’s currency-like, ERC-20 is the default foundation. If each item needs a unique identity, ERC-721 is the classic choice. If you need scale, batching, or mixed asset types, ERC-1155 often fits better. If you want modern UX features, you’ll likely pair your token design with signature-based permissions and thoughtful allowance strategies.
The important thing is not to treat standards as mere checkboxes. Standards encode user expectations. They shape security assumptions. They influence market behavior. A token is not just what it does; it’s how the ecosystem knows how to interact with it.
The “Beyond” Future: Tokens as Programmable Relationships
The most interesting frontier isn’t just new token types. It’s tokens that represent relationships: access rights, subscription models, revenue shares, identity credentials, and evolving assets that change over time. Standards are slowly moving from “how to transfer a thing” toward “how to define what a thing means.” That’s a big shift. It suggests that tokens are becoming less like static objects and more like dynamic contracts between people, communities, and applications. The internet has always been good at sharing information. Token standards are part of the internet learning how to share value and ownership with the same fluency. ERC-20 and ERC-721 were the first common languages. The “beyond” is the internet expanding its vocabulary.
