week 2
Unpacking Ethereum Standards: EIP-20, ERC-721, and EIP-3156
Ethereum is not just a blockchain—it is a constantly evolving ecosystem shaped by proposals known as Ethereum Improvement Proposals (EIPs). These proposals define how Ethereum grows, operates, and adapts to meet new use cases.
In this article, I explain three essential EIPs that have played a major role in Ethereum's development:
EIP-20: The ERC-20 fungible token standard
EIP-721: The ERC-721 non-fungible token (NFT) standard
EIP-3156: The flash loan standard used in decentralized finance (DeFi)
What is an EIP?
An Ethereum Improvement Proposal (EIP) is a formal document proposing technical improvements or new standards for the Ethereum platform. It serves as a blueprint for change—designed, reviewed, and discussed by the community.
EIPs are categorized into:
Standards Track: Core protocol changes, smart contract standards, or application-level standards
Meta: Process and governance-related proposals
Informational: General guidelines or best practices
Each EIP progresses through phases such as Draft, Review, Last Call, and Final.
EIP-20 – ERC-20: The Standard for Fungible Tokens
Introduced in 2015 by Vitalik Buterin and Fabian Vogelsteller, EIP-20 defines the ERC-20 token standard. ERC-20 tokens are fungible, meaning each token is identical in value and function to another of the same type—like digital cash.
Why It Was Introduced
Before ERC-20, Ethereum tokens lacked consistency. Different developers used different methods, causing compatibility issues with wallets and dApps. EIP-20 provided a common set of functions that any token contract could follow.
Key ERC-20 Functions
transfer(to, value)approve(spender, value)transferFrom(from, to, value)balanceOf(owner)totalSupply()
Impact
ERC-20 paved the way for:
Initial Coin Offerings (ICOs)
Stablecoins such as USDT and USDC
DeFi protocols like Aave, Uniswap, and Compound
Related EIPs
EIP-223: Prevents token loss from accidental transfers
EIP-2612: Enables off-chain token approvals
EIP-777: Adds operator and hook support
EIP-1155: Allows multiple token types in one contract
EIP-721 – ERC-721: The Non-Fungible Token Standard
Introduced in 2018 by Dieter Shirley and others, EIP-721 defines the ERC-721 standard, which allows for the creation of non-fungible tokens (NFTs). Each token created under ERC-721 is unique and has its own identifier and metadata.
What Makes It Unique
Unlike ERC-20 tokens, each ERC-721 token is distinguishable from another. This is what allows them to represent ownership of digital or physical assets, such as artwork or in-game items.
Core ERC-721 Functions
ownerOf(tokenId)safeTransferFrom(from, to, tokenId)tokenURI(tokenId)
Use Cases
Digital art collections
Gaming assets
Virtual land
Domain names (e.g., ENS)
ERC-20 vs ERC-721
| Feature | ERC-20 | ERC-721 |
| Type | Fungible (identical) | Non-fungible (unique) |
| Transfer | transfer() | safeTransferFrom() |
| Example | USDT, DAI | CryptoKitties, ENS domains |
EIP-3156 – Flash Loan Standard
Proposed in 2020 by Alex Manuskin, EIP-3156 defines a standard interface for flash loans, a feature used heavily in DeFi. Flash loans allow users to borrow large amounts of tokens with no collateral, as long as they repay the loan within the same transaction.
How It Works
Borrow tokens (e.g., 100 ETH)
Execute an operation (arbitrage, liquidation, refinance)
Repay the amount plus a small fee
If repayment fails, the transaction is reverted
What It Standardizes
flashLoan()for lendersonFlashLoan()callback for borrowersAn interface that ensures compatibility across protocols
Use Cases
Arbitrage between decentralized exchanges
Collateral swaps
DeFi liquidation and refinancing
Why It’s Important
Before EIP-3156, flash loan implementations varied from one protocol to another. This standard made them interoperable and more secure—strengthening the DeFi ecosystem’s reliability and composability.
Conclusion
Ethereum is defined by its ability to grow through well-established standards. These EIPs demonstrate that growth:
EIP-20 standardized token interactions and enabled DeFi’s rise
EIP-721 laid the groundwork for NFTs and digital ownership
EIP-3156 unlocked complex financial operations through flash loans
Together, these proposals have expanded Ethereum's capabilities and usability across multiple sectors—from finance to digital art. Understanding these EIPs is essential for anyone aiming to build, contribute, or innovate in the Web3 space.
