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what are erc20 token?

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

By RagunathPublished 2 years ago 4 min read


One of Ethereum’s most important goals is to create an ecosystem that connects everything seamlessly, creating their vision of a “world computer”. It is not only about the network, the blockchain and the applications, but also about the tokens necessary for the operation of the whole ecosystem. Since its inception in 2014, Ethereum has strived to achieve this goal, and one of the key innovations it has introduced is ERC-20 tokens, which can now be created as part of the Ethereum ecosystem. In fact, many other tokens have already been added to the Ethereum ecosystem.

These tokens are nothing more or less than digital assets. They are created with a combination of several values ​​and can be used to represent many different things, from real physical objects such as 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 operate.

In addition to creating tokens that work with the Ethereum blockchain, there is also a standard created around Ethereum tokens called the ERC-20 token development standard. It defines general rules or values ​​that must be included in all tokens created in Blockchain Ethereum, and lets developers, exchanges, and other smart contracts know exactly how the new token will behave.

ERC-20 token developers expand their capabilities

It defines the general rules that all Ethereum tokens must follow, letting developers and others, including other smart contracts on the Ethereum network, know how the tokens will perform. This greatly simplifies the creation of projects that can interact with the entire Ethereum ecosystem. Without the standard, projects would have to be changed to reflect the rules governing each new token issued. If we consider that in May 2018, 83,400 contracts were concluded for ERC-20 tokens, 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 number of rules for this to happen. The good news is that the rules provide a lot of freedom and flexibility for developers. This makes the ERC-20 standard extremely flexible and useful for create .This means that most Ethereum tokens available today are ERC-20 compatible. Some of these 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 standard, and all of these functions are such that other smart contracts in the Ethereum ecosystem can recognize and understand them. These include token transfer, total token stock, and finding token balance at a given address. Around 99% of all current ERC-20 tokens have implemented the six basic functions outlined in the standard.

The standard also defines two signals (events) that each token can receive and which other tokens are tuned to. The Ethereum developer community has agreed that these six features and two signals are the minimum required by the standard to standardize expected behavior when communicating over a network.

Another benefit of all ERC-20 tokens reflecting the same behavior across the entire Ethereum network is that almost any wallet that supports Ether can also support any ERC-20 token generator compatible token. The most popular of these are MyEtherWallet, MetaMask, and Jaxx, although there are many more.

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

The standard is quite young, so it’s no surprise that there will be issues in the coming years as Ethereum continues to grow.

Problems with the ERC-20 token

Although the ERC-20 standard offers minimal compatibility, it does not specify everything needed to make a token valuable, useful, or even functional. Tokens can still be configured, and the standard allows it 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 deployment of tokens on a technical level. This has allowed many teams and individuals to issue tokens, although technically they could not if the standard were stricter. By deploying over 83,000 tokens, you can be sure that there are many matches and similar tokens. It’s just an eyesore for investors, which complicates 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 something more than just money laundering.

Another issue was that some teams have a standard in place, which makes it even more difficult to determine how their tokens perform online. An example is when tokens are sent to smart contracts from other ICOs. At the beginning of 2018, 3 million tokens had already been lost. The proposed new ERC-223 token standard plans to correct this shortcoming.


One of the big benefits of the ERC-20 token development standard has been accelerating the growth of cryptocurrency through standardized features that have made it easier to develop and issue tokens for projects. It also increased synergies in the Ethereum network, aligning ICOs, exchanges and wallets. Since the protocol is already so useful, we are likely to see it being improved in the future to address common issues and problems.

ERC-20 tokens have quickly become an important part of the Ethereum network and the cryptocurrency world. In 2018, the number of tokens and ICOs increased, and this growth will benefit the entire Ethereum ecosystem. This means that Ethereum must also continue to grow in popularity.



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