What is ERC-20 and what does it mean for Ethereum?

what is erc 20
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Ethereum is one of the most popular cryptocurrencies, trailing after Bitcoin. Although it functions as a public ledger that records transactions, Ethereum supports smart contracts. These smart contracts are computer programs that act just like regular contracts but exist on the blockchain.

Smart contracts are programs that deploy automatically once the binding rules are satisfied. So, the ERC-20 is a standard that defines a set of rules on how developers can implement smart contracts during the creation of a token. Some of these rules include the functionalities of the token, how it will be issued and distributed.

The standard allows the created token to interact with other ERC-20 tokens without a glitch. It also enables third-party services like wallets and exchanges to integrate the tokens into their systems with ease. As such, they won’t always have to make an upgrade whenever new tokens are issued.

What is ERC-20 Ethereum Token Standart ?

The ERC-20 Ethereum token standard represents guidelines that a token must follow when implemented on the Ethereum network. In simple terms, it is a list of rules that a token must fulfil to count as an ERC-20 based token. It ensures interoperability among other ERC-20 tokens that run on the Ethereum blockchain and related services like crypto wallets.

Although the term ERC-20 may appear daunting, we will try our best to explain it in clear terms. To properly understand the content of this article, you need a prior understanding of what cryptocurrency entails. You can visit our blog to check our previous posts on Ethereum and how it works.

Tokens are digital assets with value and can be exchanged, sent or received. ERC-20 tokens are similar to Bitcoin or Litecoin, and the only difference is that they do not have their native blockchain. Instead, these tokens run on the Ethereum network.

Anyone can create their token on the network through smart contracts. It means there have to be some rules to guide the functioning of the tokens on the ground level to ensure interoperability. As a result, Ethereum developed a universal standard called the ERC-20.

What Does ERC Stand For?

ERC means Ethereum Request for Comments, and the 20 represents the proposal number. The initialism was coined in November 2015 by Fabian Vogelsteller as the standard for token creation on the protocol. The ERC standard is vital because it represents the background for the design and creation of Ethereum-based tokens. As such, it ensures greater compatibility between all related tokens and wallets.

What Is ERC-20 Token?

An ERC-20 token is a digital asset that complies with the ERC-20 Ethereum standard for creating tokens. They are simply like any other cryptocurrency except that they run solely on the Ethereum blockchain. Some common ERC-20 tokens include Basic Attention Token (BAT), Maker (MKR), Tether USD (USDT), Uniswap (UNI), Chainlink (LINK) and many more. According to Etherscan, an Ethereum data tool, the list of ERC-20 tokens in existence is north of 400,000.

How to Make an Erc-20 Token?

The ERC-20 standard provides six compulsory rules and three optional ones regarding creating and issuing tokens on the Ethereum platform. It highlights the functions that the smart contract must be able to implement. The mandatory rules are:

  • totalSupply
  • balanceOf
  • transfer
  • transferFrom
  • approve
  • allowance

totalSupply is a function that states the total number of tokens in supply. Once this limit is attained, the smart contracts cease token creation.

balanceOf outlines how many tokens an address has in its account.

transfer allows a certain quantity of tokens to be deducted from the total supply and transferred to a user’s account.

transferFrom allows one user to transfer tokens to another user.

approve ensures that all tokens are accounted for within the smart contract.

allowance checks if a user has enough tokens to send to another user. The transaction is cancelled if the user has insufficient tokens in their account.

The three optional rules for an ERC-20 token creation are name, symbol, and decimal. You do not have to include them, but they are essential. For example, tokens that are to be used as a currency should be more divisible than those that represent ownership.

Tokens have a wide range of usage, which makes them versatile. Tokens can represent anything of value, such as voting rights, lottery tickets, company shares, rewards in loyalty programs and even currency.

For instance, the native currency for the Bancor protocol is BNT (Bancor Network Token). Bancor is a protocol on the Ethereum blockchain that allows users to swap ERC-20 compatible tokens. ERC-20 standard makes everything simple for developers who might want to launch new DApps.

Shortcomings of the ERC-20 Standard

The ERC-20 represents a dominant channel through which most of the tokens on Ethereum are created. Although it is still the most popular, there are still some shortcomings. Due to these limitations, developers have proposed alternative standards to the ERC-20 standard. For example, the ERC223 aims to solve the approval issues with the ERC-20, and the ERC621 allows users to change the total token supply.

Where Can I Get ERC-20 Tokens?

You can swap, send or receive ERC-20 tokens just like any other cryptocurrency on supported platforms. However, you must possess an ERC-20 compliant wallet to store your tokens. Due to the ERC-20 tokens being ubiquitous, many digital wallets support them.

You can use wallets like MetaMask or Trust wallet to swap or store your purchased ERC-20 tokens. Kyrrex platform makes it easy to buy cryptocurrencies and sell cryptocurrencies. Kyrrex also provides an even better way to keep the ERC-20 tokens via its integrated wallet.

Cryptocurrencies have come a long way and have gone farther than imagined. There are now various applications that allow the possibility of several cross-chain operations. Specific protocols have expanded the scope of use of ERC-20 tokens to other platforms. This interoperability has created novel ways for the benefit of crypto.

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