What Is ERC-20?

In this article, we will be studying the topic “what is ERC-20?“. Also, we will look at the topic’s relationship with Ethereum, contracts, blockchain , cryptocurrency, etc.

Traders design and apply this token mainly on the Ethereum network.

Meaning of ERC-20 tokens

These are tokens that operate on the basis of the Ethereum blockchain. These tokens work in similar way as the major cryptocurrencies which is to buy and trade crypto in exchange for real cash.

A dedicated Ethereum wallet can serve as storage medium for ERC-20 tokens. The period of Initial Coin Offering brought about the creation of most of the ERC-20 tokens. They also support a lot of operations on the decentralized apps.   

In general, all the ERC-20 tokens are identical in nature and they can be traded for another. This feature is known as fungibility. In contrast, the ERC-721 tokens are non-fungible, they are unique in a special ways.

The ERC-20 network is similar to the internet in terms of having specific protocols which they follow to function properly.

Importance of ERC-20 to Ethereum platforms

The Ethereum blockchain depends on the use of tokens to carry out operations like buying, selling and trading. Since the launch of Ethereum, there has been positive results in their contribution to cryptocurrencies. We may want to know the nature of this tokens. They can stand as vouchers, IOUs or maybe the gift cards that are not even physical. Note that they are also smart contracts that adopts the activities of the Ethereum network.

KEY FACTS

  • A notable blockchain protocol which is called Ethereum depends on it tokens for financial transactions.
  • ERC-20 tokens serve as smart contracts for transactions to take place. They are the most important tokens on the Ethereum blockchain.
  • There are coins that also benefit from making the ERC-20 token a use case. Those coins includes Maker (MKR), Basic Attention Token (BAT), Augur (REP), and the OMG Network (OMG).

One can equally buy and sell ERC-20 tokens because they have value. Sometimes, they act like every other cryptocurrency except that their operations are within the Ethereum blockchain.

Rules set aside by ERC-20 tokens

Early this year, the total supply of tokens that support ERC-20 tokens hit around 508,074 on the Ethereum mainnet. The ERC-20 is of high importance and decides the paths which other Ethereum tokens must follow. Some of these rules are with respect to:

  • Transfer of tokens
  • Validation of transactions
  • Accessibility of token data, and
  • The total supply of tokens.

Furthermore, this ERC-20 token makes the detection of a token’s use case an easy task for developers. The developers can work with the notion that there won’t be repetition once the rules stand. When new tokens abide by the regulations, cooperation between various Ethereum-based tokens won’t be an issue.

Fortunately, many token developers have adopted the process, therefore new tokens will be highly compatible with ERC-20.

Getting a digital wallet that is ERC-20 compatible is also a good idea for those interested in venturing into ERC-20 tokens. However, there are many digital wallets that can serve the purpose because of how global ERC-20 tokens are.

Six Different Coding Functions Outlined by ERC-20

ERC-20 suggests six various coding functions which will be an advantage to Ethereum-based tokens.

Below are the list of the six basic coding functions:

  • total supply
  • balance of
  • allowance
  • transfer
  • approve
  • transfer from

These coding functions are important in the areas of tracing the total supply of tokens, storing and returning balances, requesting and granting approval of transfer and withdrawal, reaching transfer agreement.

In summary, they help different types of Ethereum tokens function similarly across all areas in the Ethereum network. This, almost all the digital wallets that accepts Ethereum will do so to ERC-20 tokens as well.

Just some of the use cases for ERC-20 tokens include as in-game assets, and these assets have also been shaping up the world of loyalty points.

The ERC-20 tokens are highly versatile, this feature has led to its popularity. However, listing these assets on exchanges which it can trade on without much difficulty helps to create liquidity.

Understanding the ERC-20 Standard

An average investor with little or no proficiency about blockchain and smart contracts may see the crypto space disappointing. However, all kinds of investors are just observing due to the expectations from new digital currencies.

Sometimes, what investors need to have is just basic knowledge of the most important features of the new digital currencies. Then, they can be successful in their cryptocurrency journey.

The ERC-20 token standard handles the variety of the cryptocurrency community which are beneficial to small contracts. It is also a writing criteria adopted by the Ethereum platform.

This criteria makes decisions on the operations carried out within the Ethereum blockchain. ERC-20 can be seen simply as set of standards worthy of emulation by the newly made tokens.

KEY FACTS

  • An ERC20 token creates and issues smart contracts on the Ethereum blockchain.
  • Smart contracts can create asset-based tokens as a medium for investment.
  • The full meaning of ERC is Ethereum request for comment. It came to existence in 2015.
  • Most of the popular digital currencies supports the ERC-20 standard. Examples are Maker (MKR), Basic Attention Token (BAT), Augur (REP), and OMG Network (OMG).

How Important And Famous Is The ERC20

Internet Engineering Task Force uses the request for comment to deliver important messages to a group of developers. It is similar to that of the meaning of ERC acronym.

However, the ERC-20 protocol has been in its highest rank in the cryptocurrency community. Recently, ERC-20 token governs over 10000 different tokens and they collaborate mostly with ICOs and crowdfunding companies.

For  the aspect of ICOs, their smart contracts are useful in minting NFTs. Although they perform various roles in the digital world. In the stock market, an initial coin offering is similar to a company’s initial public offering (IPO) cryptocurrency value. An ICO also helps cryptocurrency industries to generate money for creation of a new coin, DApps and other launching services.

According to Yahoo! News, ERC20 tokens were at the top of ICO bullish chart years back. These token standard backed a lot of successful cryptocurrencies. A very significant instance is the EOS token. It generated over $185 million in a period of 5 days during its ICO launch. Another token that did similar thing was Bancor (BNT) token. It also generated $153 million in crowdfunds during its ERC20 token sale. However, there are other tokens based on ERC that have generated millions of dollars during their respective ICO launch.

How ERC-20 Originated

Ethereum developers were responsible for creating ERC20 which was later made official. This could only be made possible by the submission of Ethereum Improvement Proposal. It states the protocols that needs to be followed and changes that needs to be made too. A committee has the final touches and are convinced that the EIP has transformed to ERC.

A request is made to allow smart contracts and other features within Ethereum to adopt the verified ERC protocol. However, ERC-20 is not the only essential token that exists in terms of ERC protocols.

Components of the ERC20 Standard

Below are criteria that ERC-20 token should adopt:

  • Total Supply: This provides all the data on the total circulation of a particular token
  • Balance Of: This is responsible for displaying a user’s account balance
  • Transfer: This is responsible for recording the transactions based on transfers
  • Transfer From: This records mainly transfers that came from specific wallet addresses
  • Approve: This is responsible for approving a user’s withdrawal request
  • Allowance: returns a set number of tokens to its respective owners

These functions will also activate two extra stages which are the transfer and verification stages respectively.

Recently, traders can exchange ERC-20 tokens through P2P methods or other exchanges.

Problems Encountered And How To Tackle Them.

Despite the benefits associated with ERC20 standards coupled with its popularity, many developers also think it has disadvantages. They support many other alternative token standards because of the above reason. Examples are:

  • ERC223 that focuses on approving and transferring tokens.
  • ERC621 that has a special potential of accelerating or reducing the total token supply.
  • ERC827 that gives holders power to allow a third party spend their tokens.

Each of above listed alternative standards makes ERC20 very essential.

Fabian Vogelsteller supported ERC-20 standard in November 2015. The standard sets up a protocol for the well being of operations done within the Ethereum ecosystem. Rather than seeing ERC-20 as a software, define it as a technical set of rules.

This standard helps developers to easily have the idea of future communications between different tokens and applications. It also defines the transfer and record-keeping of supplies as well as wallet balance.

However, members and companies easily accesses several DApps and other services. This is because they are ERC-20 compatible. They also make operations performed on the platform very smooth.

The tokens introduced into the Ethereum network comes with uniqueness. They also have many use cases but it all depends on the method used. They also enable holders to vote with their tokens.

The issuing and creating of a digital tokens has been made easy.  All thanks to ERC-20 protocol. It contributed to the ICO crowdfunding events and blockchain technology. As many projects have adopted this method, the amount of ERC-20 token contracts has rallied. In a period of one year ERC-20 smart contracts grew from 5500 to 40000. Currently, we have 160000 smart contracts.

 Ether (ETH) does not adopt the rules of ERC-20 because it existed before them. Ever since, a token proportional to Ether was made and it is known as Wrapped Ether (WETH). It allows users to extend their Ethereum trading to other decentralized exchanges other ERC-20.

There are functions specifically offered by the standards of ERC-20. Such as the methods of token transfers, the necessary documents with regards to the token’s smart contracts.

See the List of things to learn.
  1. Blockchain Technology
  2. Defi
  3. NFTs
  4. DAOs
  5. Crypto
  6. Web 3.0
  7. Altcoin Tokenomics
  8. Metaverse
  9. Smart Contracts

Leave a Comment