What are ERC-20 tokens?

ERC-20 is a popular standard for Ethereum-based smart contracts. Why is it so popular? How does it work? Let’s figure it out!

ERC-20 20 is a set of rules to follow when creating a contract that is in charge of parameters and the issuance of new user tokens.

This standard has greatly simplified the process of creating new cryptocurrencies.

On the Ethereum network, various ERC-20 tokens can be transferred and stored at the same address.

The ability for any developer to release their digital asset without the need for a separate blockchain has become a turning point in the history of cryptocurrencies.

What does ERC-20 mean?

ERC (Ethereum Request for Comments) is the name of an official protocol for making proposals to improve Ethereum. 20 is the serial number of a proposal.

How did ERC-20 appear and when?

The proposal to introduce a single standard for user tokens was first published in November 2015. Its authors were Ethereum creator Vitalik Buterin and developer Fabian Vogelsteller.

ERC-20 has become a guide for creating fungible Tokens — identical tokens that can be exchanged for each other.

Despite the fact that ERC-20 tokens work within the framework established by the Ethereum team, this framework is quite broad, giving developers greater flexibility when creating them.

Why do we need ERC-20?

Bitcoin established the paradigm for other crypto projects: in order to issue any digital currency, a separate blockchain must be launched.

This rule has been broken by Ethereum. Smart contacts enabled you to create a token and assign it unique useful functions within your own application.

Prior to ERC-20, however, there was a problem with token compatibility because each of them had a unique smart contract. To put it another way, in order for the exchange or wallet to support the token, the creators had to write new code each time.

As a result, supporting an increasing number of tokens became increasingly difficult. As a result, a standard protocol for all tokens was developed.

ERC-20 has significantly simplified and unified the issuance of tokens within a single network. This standard, along with smart contracts, has become a universal way to create and monetize applications using blockchain.

Which tokens have ERC-20?

The ERC-20 standard is used by many popular cryptocurrencies. It is particularly prevalent in the field of decentralized finance (DeFi) and related areas. Furthermore, ERC-20 is used for management tokens in popular cryptocurrency projects. Here are a few examples:

• Maker (MKR)
• Tether (USDT)
• Chainlink (LINK)
• The Sandbox (SAND)
• The Graph (GRT)
• Uniswap (UNI)
• Axie Infinity (AXS)
• Aave (AAVE)
• ApeCoin (APE)
• Basic Attention Token (BAT)
• Compound (COMP)
• OMG Network (OMG)
• yearn.finance (YFI)
• 1inch (1INCH)
• Enjin Coin (ENJ)

Where to store ERC-20?

Popular wallets for the ERC-20 standard are Metamask, Trust Wallet, Exodus, MyEtherWallet.

The interface of some wallets shows only the ETH balance, though ERC-20 can be also stored on its address. In this case, simply export it to a wallet that supports the required asset.

Where can I find more information about the ERC-20 transfer?

The Ethereum block browser allows you to view transaction details for any ERC-20 token, such as Etherscan. There is on-chain data on all assets of this standard in the same place, in a separate section. The token page displays the number of holders, the distribution of tokens for each of the addresses, and a link to the asset’s smart contract.

What are the main features of the ERC-20 protocol?

This standard specifies six mandatory and three optional (but recommended) parameters for any smart contract.

Among the required parameters there are:

• the totalSupply function, which is responsible for the total issue of tokens, ensuring that no new tokens can be created once the maximum number has been reached.
• balance0f determines the initial number of tokens assigned to a specific address. This is usually the address belonging to the issuer.

The standard also specifies two methods for moving tokens. The transfer function allows tokens to be transferred to users, and transferFrom is required for asset transactions.

Two more functions are required to verify the two previous methods of token movement:

• approve is used to verify that a smart contract, based on the total issue, can distribute tokens;
• allowance is required to verify that there is sufficient balance to send tokens to another address.

Optional parameters include the name of the token and its ticker, as well as determining the maximum number of fractional digits after the decimal point (for example, bitcoin has eight such digits — 1.00000000 BTC).

A set of these easy-to-implement parameters allows you to maintain a single code base that interacts with any ERC-20 smart contract.

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What are the risks of using ERC-20 tokens?

Because ERC-20 tokens are actually smart contracts, they do have some risks despite their effectiveness. A smart contract, for example, cannot be changed once it has been launched. It could also have bugs and vulnerabilities.

One of the most well-known examples is the hacking of The DAO project, which resulted in the theft of $50 million in cryptocurrencies from investors and had to be remedied with the help of the Ethereum hard fork.

In rare cases, scammers will intentionally include such parameters in the smart contract code of their token, using which they will steal the funds of the holders or implement the Pump & Dump scheme.

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