ERC-20 Token Standard simply explained

Anyone who deals with cryptocurrencies and ICOs will come across the terms token and ERC-20 more often. Especially in the context of Ethereum. But what do these terms mean exactly and what do you need them for? The following article is intended to shed light on the subject and clear up any misunderstandings.

ERC-20 tokens – What do these terms mean?

First, the term token needs to be explained in more detail. Ethereum is based on the use of tokens that users can buy, sell, or trade. These should not be confused with Ether, which is the natural currency of the Ethereum blockchain. Tokens are digital assets or utilities based on the blockchain. A certain value can be attributed to them. These values can be quite different, such as promissory bills, services, or even real objects. Thus, strictly speaking, they are not cryptocurrencies. Tokens are smart contracts, which in the case of ERC-20, are executed on the Ethereum blockchain.

The most widely used token standard is called ERC-20, and Ethereum first issued technical specifications for a token on its blockchain in 2015. Here, ERC stands for “Ethereum Request for Comments.” The number 20 stands for the unique identification number once given to this standard to distinguish it from others. ERC-20 is therefore a standard protocol that specifies the rules and functionality of a token on the Ethereum Blockchain.

Youtube Video: ERC20 tokens – Simply Explained

What is the function of ERC-20 and what is it used for?

ERC-20 defines a list of rules for all tokens based on this standard. This makes it easier for developers to create new tokens without having to start from scratch every time. In this regard, the rules defined by the Ethereum team provide enough freedom to allow developers the necessary flexibility in designing the token.

The token standard consists of a total of 6 functions and 2 events. It was created to enable interoperability between applications, exchange nodes, and interfaces. The functions describe how tokens can be transmitted and how token-related data can be accessed. The events, on the other hand, contain formatting guidelines for transfers and approvals. Ethereum’s smart contracts, including all token contracts, are written in the Solidity programming language.

The advantages of the ERC-20 token system at a glance:

  • Unified and fast transactions
  • More efficient transaction confirmations.
  • Reduces the risk of contract breach
  • Functionality implemented in ERC-20 helps the web client interact more efficiently and quickly with other tokens and the blockchain

Who is using ERC-20? Our tokenlist

The website Etherscan documents the number of Ethereum tokens based on the ERC-20 standard. According to this, there are currently a total of 67985 ERC-20 token contracts.

Some of the most popular and largest tokens by market cap are:

  • EOS
  • Tronix
  • VeChain
  • BNB
  • OmiseGo
  • ICON
  • Golem
  • Veritaseum
  • Nebulas
  • Bancor
  • Storj

The list is long and growing continuously. The token standard was introduced mainly due to the increased interest in ICOs. Because the biggest advantage, lies in the interoperability with other compliant tokens and decentralized applications on Ethereum. This allows them to be traded on all platforms that support Ethereum standards.

Are there other ERC token standards?

The ERC20 also has a vulnerability or two. In some situations, the system can cause difficulties. For example, if a token is used to send Ether to another smart contract that is not compatible, the transaction will not be rejected because the incoming transaction is not recognized. The Ether sent sits in limbo and is essentially lost to the user. According to the last documented status as of Dec. 31, 2017, about US$3.33 million worth of tokens went out this way.

For this reason, new standards have been drafted. One of them is the ERC223 token standard. It solves the problem by rejecting non-compatible transactions. Another standard is the ERC721. It differs from the ERC-20 because it is non-fungible. This allows for tokens or assets to be created that are unique and not arbitrarily interchangeable. This is important for in-game assets, for example, or for platforms such as Cryptokitties or Cryptopokemons.

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