Summary

Token standards are a set of rules and conventions that govern how cryptocurrency tokens operate. Common standards include ERC-20, BEP-20, ERC-721, and ERC-1155.

Introduction
Although there are tens of thousands of cryptocurrencies, you might not know that most are created based on the same blueprint. These blueprints, known as token standards, define the key functions and attributes of blockchain tokens.

Why Follow Token Standards?
Interoperability
Token standards ensure that all products built under the same standard can interact or work together. If project tokens are created following token standards, new tokens can remain compatible with existing platforms and applications (e.g., wallets). For example, ERC-20 assets can interoperate with other products and services developed under the same token standard.

This is why you can trade ERC-20 tokens with other tokens. Without token standards, trading multiple cryptocurrencies would be extremely difficult. You would also need to create a dedicated wallet for each token instead of using a wallet that can hold countless cryptocurrencies.

Composability
When developers program, if a composable system is available, they can reuse existing components to create new products. The same applies to token creation—following token standards reduces the time spent on basic functionalities, allowing developers more time to experiment and innovate.

Efficiency
Additionally, token standards facilitate interactions between smart contracts. Once a smart contract deploys a token according to a token standard, it can also monitor the created tokens.

Token standards like ERC-20 and BEP-20 include basic functions such as address retrieval and token balances, enabling smart contracts to monitor tokens more effectively. For example, developers can use the Contract Application Binary Interface (ABI) to track token transfers and other data for ERC-20 tokens.

Common Cryptocurrency and DeFi Token Standards
BEP-20
BEP-20 is the token standard for Binance Smart Chain (BSC). This standard is a technical specification developed for BSC, allowing developers to create various tokens, including pegged tokens, utility tokens, stablecoins, and others. The BEP-20 standard also introduces features like blacklisting, minting, and pausing token burns.

ERC-20
In 2015, Fabian Vogelsteller proposed the ERC-20 token standard, which later became the primary framework for developers to design various tokens, including virtual tokens, staking tokens, and virtual currencies.

The ERC-20 token standard is designed for fungible (i.e., non-unique) assets following universal rules. Thus, if you create 1,000 ERC-20 tokens, each token will have the same functionality.

The BEP-20 standard is very similar to ERC-20. Note: However, they belong to entirely different blockchain networks. The ERC-20 token standard applies to the Ethereum blockchain, while BEP-20 applies to the BNB Smart Chain (BSC).

ERC-721
Did you know that most non-fungible tokens (NFTs) on Ethereum follow the ERC-721 token standard? Whether it's a limited-edition NFT or a Proof of Attendance Protocol (POAP), your NFT is likely created based on the same blueprint. What makes NFTs unique? The rules state that to be an ERC-721 token, the asset must have a globally unique tokenId.

ERC-721 functionalities include token transfers, current balances, total supply, and, as mentioned earlier, global uniqueness.

ERC-1155
As token standards evolved, a guideline emerged to address the industry's need for multiple token types. ERC-1155 is a multi-token standard that allows the creation of different types of digital assets, including utility tokens like BNB and NFTs.

Limitations of Token Standards
Tokens created under the same standard share consistent basic functionalities and interact well, while tokens under different standards have inconsistent basic functionalities and poor interoperability. Given the diverse rules governing token standards, it's no surprise that they are incompatible. In other words, tokens developed under different standards cannot coexist on the same platform or communicate/trade with each other. If you own multiple cryptocurrencies, you may have experienced the frustration of not being able to use BTC on Ethereum. To address this limitation, the industry proposed a new type of token called wrapped tokens.

Wrapped Tokens
Wrapped tokens are cryptocurrencies pegged to other cryptocurrencies. Typically, the original asset is placed in a digital vault (also known as wrapping), while its wrapped version (avatar) is created on another blockchain.

Conclusion
Token standards serve as blueprints for designing and issuing blockchain tokens. Currently, several token standards exist in the industry, along with innovative solutions like blockchain bridges and wrapping mechanisms to address token incompatibility issues.