ERC-721 tokens differ to ERC-20 tokens in the sense that ERC-721 tokens are non-fungible. This means that each token is unique and as a result, not interchangeable.
Breaking down ERC
ERC stands for Ethereum Request for Comments. This isn’t a technology or platform, it provides technical guidance to developers for construction. As of December 2018, there are nine final Ethereum Requests for Comments. ERC-20, ERC-55, ERC-137, ERC-162, ERC-165, ERC-181, ERC-190, ERC-721, and ERC-1167.
Developers can create an ERC by submitting an Ethereum Improvement Proposal (EIP).
ERC-721 - The Non-Fungible Token Standard, was created by William Entriken, Dieter Shirley, Jacob Evans, and Nastassia Sachs due to ERC-20 interface incapabilities. Through an Ethereum Improvement Proposal (EIP) created on the 24th of January 2018.
A popular Ethereum decentralized application, Cryptokitties, utilized ERC-721 to create unique digital collectibles in the form of kitties.
Each different kitten was worth a different amount on the marketplace, dictated by the users of the platform. Each different kitten commands a different price, and as a result, each token needs to be unique.
The creation of blockchain based non-fungible tokens allows for
- physical property (houses, artwork, and vehicles)
- Virtual Collectibles (Cryptokitties, rare pepes, collectible cards)
- Assets with negative value (loans)
In order to create an ERC-721 token, the contract must be compliant with both the ERC-721 and ERC-165 interfaces.