What are ERC-20 tokens: Everything you Need to Know

What are ERC-20 Tokens?

ERC-20 Tokens are crypto-assets or crypto-tokens that can be traded like Bitcoin or Ethereum or Litecoin. But unlike other cryptocurrencies, they do not have a dedicated Blockchain. Instead, they boom on Ethereum’s Blockchain.

ERC-20 tokens follow a set of rules, defined in ERC-20 standard so that they can be exchanged for other tokens or transferred to cryptocurrency wallet. In layman terms, if there are certain functions included in a token’s smart contract, then that token is ERC20 compliant.

What are Smart Contracts?

Smart contracts are used to create ERC-20 tokens. Besides, smart contracts are used to facilitate transactions of tokens, and record balances of tokens in an account. Smart contracts are written in the programming language “Solidity” based on If-This-Then-That (IFTTT) logic.

What Happens After Creating a Token?

After ERC-20 token development, the token can be spent, traded, or given to anyone.

ERC-20 is the universal language used by all tokens on the Ethereum network. It allows one token to be traded with another.

What is ERC-20 Standard?

ERC stands for Ethereum Request Comment and 20 is the unique ID number that distinguishes this standard from others. In simple words, ERC-20 is a technical standard used for smart contracts on Ethereum Blockchain. It has the common list of rules which every Ethereum token must adhere to. Wallets that support the Ether currency also support ERC-20-compliant tokens.

“Same as HTTP protocol for internet, we have a standard protocol for tokens to be issued on Ethereum which is ERC20”.

Why was ERC-20 Standard Required Initially?

In early days, ICO tokens were trying to “re-invent the wheel” mostly for the execution part. Each token had its own set of functions, which led to a whole new world of problems.

To create a healthy ecosystem based on Ethereum, it is essential that Decentralized apps are built in such a way that they can interact with each other easily.

To explain in a better way, just imagine a token A- based on “A” smart contract and token B based on “B” smart contract. In order to figure out how these tokens will communicate with each other, developers have to study both A and B contracts. It seems fine for one or two tokens, but if there are hundreds of tokens then it becomes challenging, and almost impossible, to study each token’s smart contract and do all the complex calculations. To resolve this issue, something had to be done, ergo “ERC-20” was introduced by Fabian Vogelsteller on November 19, 2015.

What are the Benefits of ERC-20 Standard?

Prior to the introduction of ERC-20 token standard, startups and DApps had to set their standards to launch their tokens on Ethereum’s network.

However, the launch of the ERC-20 standard has changed the game and made it relatively streamlined. ERC-20 standard has led to:

Uniformity of tech and protocol standard

Reduced complexity of understanding each type of token implementation

Enhanced liquidity of ERC-20 tokens

Reduced risk of breaking contracts

Important Things to Ponder

ERC-20 is built on Ethereum Blockchain; therefore it can be exchanged on it. Ethereum wallets can be used to store and transfer ERC-20 tokens to other Ethereum wallets. However, the exchange address should not be used because exchange generates unique addresses for each coin. This means that ERC-20 token address and Ethereum address will be different. If the ERC-20 token is sent to exchange’s address, the exchange will not recognize it and the tokens will not be credited.

Take Away

According to Etherscan, a total of 202,849 token contracts exist on Ethereum’s main network, as of 29 July, 2019. ERC20 token development has been in the hype with the ICO’s and crowdfunding companies. A report by CCN.com suggests that ERC20 tokens “almost single-handedly dominated the ICO bull market of 2017. Given these stats, it would not be wrong to say that ERC-20 tokens are dominating the cryptocurrency market, specifically ICO.

If you are planning to build an ERC-20 token and launch your ICO, Antier Solutions can navigate your journey towards success with design thinking driven approach. We devise intelligent strategies – right from token design conceptualization and white paper creation to ERC20 token development, launch and marketing – to reinvigorate your business for long term growth.