What is ERC-20 and What Does It Mean for Ethereum?

What is ERC-20 and What It Means for Ethereum

ERC-20: The popular Ethereum cryptocurrency and blockchain system is based on the use of tokens, which can be bought, sold or traded. Ethereum was launched in 2015 and has since become one of the driving forces behind cryptocurrency's popularity.

In the Ethereum system, tokens represent a wide variety of digital assets, such as vouchers, IOUs or even tangible real-world objects. Essentially, Ethereum tokens are smart contracts that use the Ethereum blockchain.

ERC-20: Main Advantages

  • The popular cryptocurrency and blockchain system known as Ethereum is based on the use of tokens, which can be bought, sold or traded.
  • One Tokens The most significant is called ERC-20, which emerged as the technical standard used for all smart contracts in the Ethereum blockchain for token implementation.
  • Many popular digital coins use the ERC-20 standard, including Maker (MKR), Basic Attention Token (BAT), Augur (REP) and OmiseGO (OMG).

What is ERC-20?

One of the most significant Ethereum tokens is known as the ERC-20. ERC-20 emerged as the technical standard; it is used for all smart contracts in the Ethereum blockchain for token implementation and provides a list of rules that all Ethereum based tokens must follow.

ERC20 is similar in some respects to Bitcoin, Litecoin and any other cryptocurrency; ERC-20 tokens are assets based on blockchain that have value and can be sent and received.

The main difference is that instead of running on their own blockchain, ERC-20 tokens are issued on the Ethereum network.

ERC-20 Defines A Common List of Rules

What is ERC-20 and What It Means for Ethereum

As of October 2019, more than 200.000 ERC-20 compliant tokens existed on Ethereum's core network. The ERC20 commands a vital importance; it defines a common list of rules that all Ethereum tokens must follow.

Some of these rules include how tokens can be transferred, how transactions are approved, how users can access data about a token and the total supply of tokens.

Consequently, this specific token allows developers of all types to accurately predict how new tokens will work in the larger Ethereum system.

This simplifies the task set out for developers; they can get on with their work knowing that any and all new projects won't need to be remade every time a new token is released, as long as the token follows the rules.

This compliance is also required; it ensures compatibility between the many different tokens issued in Ethereum.

Fortunately, the vast majority of token developers work in compliance with the ERC-20 rules, which means that most tokens released through the Ethereum Initial Coin Offerings (ICO) are ERC-20 compliant.

Many popular digital coins use the ERC-20 standard, including Maker (MKR), Basic Attention Token (BAT), Augur (REP) and OmiseGO (OMG).

If you plan to purchase any digital currency issued as an ERC-20 token, you must also have a wallet that supports these tokens. Fortunately, because ERC-20 tokens are so popular, there are many different options for wallets.

ERC-20 Specifies Six Different Functions

ERC-20 defines six different functions for the benefit of other tokens in the Ethereum system. These are typically basic functionality issues, including the method by which tokens are transferred and how users can access data related to a specific token.

Taken together, this set of functions and signs ensures that Ethereum tokens of different types perform uniformly anywhere in the Ethereum system.

As such, almost all digital wallets that support currency ether also support ERC-20 compatible tokens. But as the ERC20 standard remains relatively incipient, there will likely be bugs that need to be fixed.

To cite an example of a past failure: Ethereum tokens sent directly to a smart contract used to lose money because a protocol error meant that a token contract could not respond to an attempt to make a direct transfer, resulting in "loss" of the money associated with that transfer.

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