Over the few years, blockchain technology has evolved with respect to several different features like design, infrastructure, working mechanism, etc. However, with new platforms offering much more attractive features, it is common for blockchain-based projects, aka decentralized applications (dApps) and crypto tokens, to migrate from one blockchain to another.
Launched in 2020, BNB Chain quickly gained a lot of popularity due to its distinguishing features of low cost and faster transaction rate. Several projects based on other blockchain platforms are already migrating to the BNB Chain platform.
In this article, we provide an overview of what tokens are and supported tokens by BSC.
Overview of Tokens
Technically speaking, “token” is just another term used for referencing cryptocurrencies or crypto-assets. Nevertheless, with the evolution in the standards for crypto tokens, tokens can be described in the context of their use. One description of tokens is that of cryptocurrencies, where tokens are used in the form of digital money and are native to a particular blockchain. In another way, tokens can also be described as digital assets running on top of other cryptocurrencies’ blockchain, e.g., most of the decentralized finance (DeFi) tokens. There is a wide spectrum of use cases where tokens can be functional. e.g., decentralized exchanges, tradable assets, digitization of assets, etc. Generally, all tokens can be traded or held like any other cryptocurrency.
Importance of Tokens
Tokens hold a very important role in the blockchain-based decentralized ecosystem and can be used for various purposes within a dapp’s universe. Other than fungible tokens, which are a representation of interchangeable assets on a blockchain and are usually used as cryptocurrencies, some of the most important categories based on usage are as follows:
- DeFi Tokens: DeFi protocols and dApps are aimed at reproducing traditional financial system functions (lending, borrowing, saving, insurance, trading, etc.). DeFi tokens represent a diverse set of cryptocurrencies native to automated, decentralized DeFi platforms run through smart contracts. These tokens perform a wide range of functions within the DeFi platform and are also tradable or can be held like any other cryptocurrency.
- Utility Tokens: These types of tokens are designed to serve particular purposes within a specific application/protocol's ecosystem and allow users to be part of the decision-making on a specific network. Furthermore, utility tokens are unique to their ecosystem and are non-mineable cryptocurrencies. They are usually pre-mined, being created all at once, and distributed in a manner chosen by the team behind the project.
- Governance Tokens: These specialized tokens give holders the right to vote on issues that govern the development and operations of a blockchain project. It’s a method for projects to distribute decision-making power to their communities. This decentralized governance model helps align the interests of the token holders with that of the project.
- Non-Fungible Tokens (NFTs): NFTs are used to represent ownership rights to a unique digital or real-world asset. These allow the tokenization of real-world things like art, collectibles, real estate, etc. Ownership of an asset is secured by the blockchain network, as no one can modify the record of ownership or copy/paste a new NFT into existence.
- Security Tokens: are a new class of assets that aim to be the crypto equivalent of traditional securities like stocks and bonds. Their main use case is to sell shares in a company (very much like the shares or fractional shares sold via conventional markets) or other enterprises (for instance, real estate) without the need for a broker. Major companies and startups have been reported to be investigating security tokens as a potential alternative to other methods of fundraising.
Ethereum is the pioneer of blockchain platforms to provide smart contract functionalities and standards for developing crypto tokens. However, with time, several blockchain platforms have emerged, some being EVM-compatible and others non-EVM. With a multitude of blockchain projects issuing their own tokens on different blockchains, it is important to make sure that these tokens are compatible with the underlying blockchains and adhere to the platform’s token standards.
To ensure compatibility, interoperability, and security, token standards are issued. These are a set of rules for the issuance and implementation of new tokens. The most commonly included requirements in these token standards are the token’s total supply limit, minting, burning, and the process for performing transactions using the token.
Furthermore, token standards are designed to help avoid fraud, technical incompatibilities between tokens, and issuance of tokens not aligned with the blockchain’s principles. For example, the rules for total supply and new token minting help contain potential token value depreciation.
ERC Token Standard
One of the most popular token standards is the ERC standard. ERC (Ethereum Request for Comments) is a set of rules defining the issuance and implementation of tokens on the Ethereum Blockchain. ERC20 is a technical standard that describes a common set of rules that should be followed for a token to function properly within the Ethereum ecosystem. It is one of the most commonly used standards and is usually used for fungible tokens in the form of cryptocurrencies. Other popular ERC standards are ERC-721 (NFTs) and ERC-1155 Multi-Token Standard.
BEP Token Standard
Similar to ERC, BNB Chain defines its own set of standards for token issuance, management, and implementation known as BEP (BNB Evolution Proposals). BEPs are token management rules and pre-defined criteria for launching on-chain assets on BNB Chain. The most popular BEP standards are BEP2 and BEP20. BEP2 is the native coin of the Beacon Chain. Whereas BEP20 is popular for use on BSC. It is to note here that BEP20 is very similar to ERC20 and extends its functionality. Note that BNB, which is the native token of the BNB Chain ecosystem, is a BEP2 token.
Difference between ERC and BEP tokens
Both ERC20 and BEP20 standards are very similar in the mechanism. However, ERC-20 is dedicated to Ethereum, whereas BEP-20 is dedicated to BNB Smart Chain. In simpler terms, each of these is a token standard that belongs to a different blockchain.
ERC20 vs BEP20
In this section, we provide a brief difference between the ERC20 and BEP20 tokens.
Token Standards Supported by BSC
BNB Chain is an ecosystem that runs on two blockchain giants, namely, Beacon Chain (BC) and BNB Smart Chain (BSC). The native token standard for Beacon Chain is BEP2, while the native token standard for BNB Smart Chain is BEP20. BNB ecosystem’s native currency, BNB, initially launched as an ERC20 token, is in fact a BEP2 token.
Beacon Chain is essentially a digital asset creation and exchange platform. Beacon chain is responsible for the governance of the BNB Chain ecosystem, which includes staking and voting. BEP2 is the token standard for BNB Chain’s native currency, BNB, on Binance’s crypto exchanges. It is a unique token standard. BEP2 is not compatible with blockchains other than BNB Chain. Additionally, BNB in the BEP2 format can only be used as a transaction fee on both Binance cryptocurrency exchanges. One limitation of BEP2 is its lack of support for smart contract development. For more information, you can read the full BEP2 proposal here.
BSC is the blockchain component of the BNB Chain that provides its users with a smart contract facility and is a platform for dApp development. BEP20 is a token interface standard for creating token contracts on BSC. The BEP20 tokens are designed to be compatible with BEP2 and ERC20. It extends ERC20 for compatibility with EVM chain and Ethereum smart contracts. Other than the ERC20 functionalities, the BEP20 standard contains additional interfaces, such as getOwner and decimals. For more information on BEP20, read the full proposal here.
BEP2 vs BEP20
Below is a brief difference between the BEP2 and BEP20 tokens in terms of functionality.