What is an ERC-20 token?

Author: Blockchainx Tech

Ethereum's protocol was not explicitly designed to create and record transfers of its own cryptocurrencies. Rather, this protocol is more generalized. It allows you to create other tokens 'on top' of your blockchain. And these tokens are called ERC20 (ERC stands for Ethereum Request for Comments). Which is the most widely used standard today.

The ERC20 smart tokens are contracts that run on the blockchain of ethereum and operating within the framework established by the team ethereum. However, such a framework is broad enough that its developers have considerable flexibility in the design and function of tokens.

What is the importance and benefits of the ERC20 standard?

ERC-20 tokens are governed by a set of standard rules that allow interoperability in the Ethereum ecosystem, with the wide variety of tokens and other decentralized applications (DAPPs) compatible with each other.

These rules make it possible for developers to create new technologies with a smaller margin of error, by being aware of the necessary conditions for them to be integrated and coexist on the network.

To fully comply with the ERC-20 standards, the developer must incorporate a specific set of functions in his smart contract that, at a high level, will allow him to perform the following actions:

  1. Get the total supply of tokens

  2. Get account balance

  3. Transfer the token

  4. Approve spending the token

The development of ERC20 enables seamless interaction with other smart contracts and decentralized applications on the Ethereum blockchain. There are certain tokens that fulfill only some of the standard functions, thus being partially compatible with ERC-20 and that depending on the functions that it does not fulfill, it can interact in the blockchain.

The creation of the ERC-20 token as a standard has brought numerous benefits to the ecosystem and to the development of new technologies, optimizing its incorporation and compatibility with the rest of the applications.

Some of the benefits are:

  • The unit of technology and a standard protocol, facilitating the work of developers.

  • Less complexity in understanding each type of tokens implemented, since all will be based on the same principles of functionality.

  • Greater liquidity of ERC-20 tokens, as they are used in most ICOs and as a work base for projects.

  • Lower risk of breaking contracts, as there are no impediments or incompatibilities.

Do ERC-20 tokens influence the value of Ethereum?

Not at the beginning. The value of each particular token depends on a variety of factors described in the application code, such as the total supply of tokens, as well as external factors such as the demand for it in the market or speculation about its value. future.

That these tokens inhabit the Ethereum blockchain does not mean that the value of the token is the same as that of Ether. The value of the token is generally not tied to the value of Ether.

Who can create ERC-20 tokens?

Anyone with a certain level of technical knowledge can create their own token. So both a team with a revolutionary project and a scammer looking to fool crypto investors in search of easy money can perfectly create their own.

This is possible because both developments of Ethereum and the ERC20 standard are open source, we are all free to use them. On the other hand, the tools and resources necessary for this are available to everyone.

The technical knowledge required to create a token goes beyond having the technical skills of Ethereum and its smart contracts. It is necessary to know the associated programming language called Solidity.

Being a young technology, the language is still largely unknown to the programming community, so very few people in the world can work with the standard anymore.

ICO

Tokens have become a common way of financing projects through ICOs. During the last year, there has been a boom in ICOs. And most of them are ERC-20 tokens.

It is important to know that not all tokens are based on Ethereum and not all wallets are ERC20 compliant.

Wallets compatible with ERC-20 tokensThis point is important as most ICOs are ERC-20 tokens. If we send these tokens to an unsupported wallet, we can lose them. So having a compatible wallet is essential.

There are many wallet alternatives that support this token.

One of the most recommended is the hardware wallet. However, it is not the only alternative, there are free wallets available on the net.