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What are ERC-20 tokens?

Ethereum is a popular Blockchain network designed to allow any developer to encrypt any decentralized application and run it on the Blockchain.

By RagunathPublished 2 years ago 5 min read

Ethereum is a popular Blockchain network designed to allow any developer to encrypt any decentralized application and run it on the Blockchain. The system is based on the use of tokens, also known as cryptocurrencies, which can be sold, bought and transferred. All of this works on Ether, the native token of Ethereum, and this token is used to pay miner fees, transaction fees, and many other network services such as smart contracts.


- Introduction

- ERC-20 token developers are expanding their capabilities

- Six functions defined by ERC-20

- Problems with the ERC-20 token

- At last


One of Ethereum’s most important goals is to create an ecosystem that connects everything seamlessly, creating its vision of a “global computer.” It’s not just about the network, the blockchain, and the apps, but also the tokens needed to keep the entire ecosystem running. Since its founding in 2014, Ethereum has worked towards this goal, and one of the main innovations it has introduced is ERC-20 token development, which can now be created as part of the Ethereum ecosystem.

These tokens are neither more nor less than digital assets. They are created with a combination of various values ​​and can be used to represent many different things, from real physical objects like gold or real estate, to debt receipts or vouchers, to loyalty points. These tokens, which were developed on the Ethereum Blockchain, are essentially smart contracts and therefore require Ether to function.

ERC-20 token developers are expanding their capabilities

The ERC-20 standard was proposed in November 2015 by Fabian Vogelsteller.It sets out the general rules that all Ethereum tokens must follow, allowing developers and others, including other smart contracts on the Ethereum network, to know how the tokens will work. This greatly simplifies the creation of projects that can interact with the entire scope of the Ethereum ecosystem. Without the standard, projects would have to be modified to reflect the rules that govern each new token issued. If we consider that as of May 2018, 83,400 contracts for ERC-20 tokens were signed, we can see that this standard is huge for developers.

The standard means that new tokens are created to be compatible with the existing network, and the new token must follow a set of rules for this to happen. The good news is that rules give developers more freedom and flexibility. This makes the ERC-20 standard extremely flexible and useful for creating a virtually unlimited variety of tokens with equally different functions. Although the ERC-20 standard has not been officially adopted or enforced, developers of new tokens largely adhere to the rules laid out in the standard. This means that most of the Ethereum tokens available today are ERC-20 compliant. Some of the most popular tokens are EOS, OmiseGo (OMG), Basic Attention Token (BAT), and Power Ledger (POWR).

Six functions defined by ERC-20

Six functions have been defined for the ERC-20 token generator standard, and all of these functions are such that they can be recognized and understood by other smart contracts in the Ethereum ecosystem. These include the transfer of tokens, the total stock of tokens, and finding the balance of tokens at a given address. Roughly 99% of all current ERC-20 tokens have implemented the six core functions outlined in the standard.

The standard also defines two signals (events) that each token can receive and that other tokens are tuned to. The Ethereum developer community agreed that these six features and two signals are the minimum required by the standard to standardize expected behavior when communicating over a network. The ERC-20 standard allows developers to easily work with external smart contracts.

Another advantage of the fact that all ERC-20 tokens reflect the same behavior throughout the Ethereum network is that almost all wallets that support Ether can also support all ERC-20 compatible tokens. The most popular are MyEtherWallet, MetaMask and Jaxx, although there are many others.

It is important to remember that ERC-20 is still a draft and is not used by the Ethereum community. It can also be changed very easily, although as more tokens are created it becomes harder to think about. It appears that the Ethereum developer community is committed to the standard, given current adoption, and it’s a good guess that almost all new markers will also be ERC-20 compliant.

The standard is quite young, so it is not surprising that in the next few years there will be some problems, since Ethereum continues to develop. One of these problems has already been identified. All funds sent by a smart contract will be destroyed, as a smart contract only works to track and distribute assets.

Problems with the ERC-20 token

Although the create erc20 token is standard provides minimal support, it does not specify everything that is necessary for a token to be valuable, useful, or even functional. Tokens can still be configured, and the standard allows this as long as the token still matches the basic functions and signals of the ERC-20.

One of the problems with the current standard is that it greatly simplifies the implementation of tokens on a technical level. This has allowed many teams and individuals to issue tokens, although technically they would not be able to do so if the standard were stricter. By implementing more than 83,000 tokens, you can be sure that there are many matches and similar tokens. It is simply a horror for investors, complicating the decision on which token to invest money in. It also discredits cryptocurrencies in general, as many of these projects are unnecessary and are seen as more than just money laundering.

Another problem was that some teams implemented a standard, making it even more difficult to determine how their tokens perform online. An example is when tokens are sent to the smart contracts of other ICOs. If a smart contract has been programmed to accept tokens, they are burned or lost forever. By the beginning of 2018, 3 million tokens had already been lost. The proposed new token standard ERC-223 plans to correct this deficiency.


One of the extraordinary advantages of the ERC-20 standard has been speeding up the development of digital currencies through normalized highlights that have made it simpler to create and give tokens for projects. It has additionally expanded cooperative energies on the Ethereum organization, adjusting ICOs, trades, and wallets. Since the convention is as of now so valuable, we will probably see it worked on in the future to resolve normal issues and issues.

ERC-20 tokens immediately turned into a significant piece of the Ethereum organization and the universe of cryptographic forms of money. In 2018, the quantity of tokens and ICOs expanded, and this development will help the whole Ethereum biological system. This implies that Ethereum should likewise keep on filling in prominence.



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