What are ERC-20 Tokens?
Wrapping your head around how digital coins and tokens work involves a pretty steep learning curve. If you are new in the cryptocurrency arena, you might bump into a plenty of technical jargons as well as acronyms and buzzwords that need to be deciphered before you can fully grasp the intricacies of cryptocurrency. One of the common terms you may hear a lot about is ERC-20 tokens.
ERC-20 tokens are tokens designed and used solely on the Ethereum platform. They follow a list of standards so that they can be shared, exchanged for other tokens, or transferred to a crypto-wallet.
The “ERC” stands for “Ethereum Request for Comments”, which is an official protocol used to propose improvements to the Ethereum network. The “20” is the unique ID number used to identify the proposal.
The Ethereum community created these standards with three optional rules, and six mandatory rules. The protocol is necessary to ensure compatibility between the many different tokens issued on Ethereum.
Optional Rules
Ø Token name
Ø Symbol
Ø Decimal (up to 18)
Mandatory Rules
Ø Total supply
Ø Balance of
Ø Transfer
Ø Transfer from
Ø Approve
Ø Allowance
You may find this confusing, so let’s dig deeper by learning what is Ethereum in the first place.
Ethereum is a decentralized network of computers with two basic functions. They are: 1) blockchain that can record transactions and 2) a virtual machine that can produce smart contracts.
Through these two functions, Ethereum is able to support decentralized applications (dApps). These dApps are built on the existing Ethereum blockchain. Ethereum charges developers for the computing power in their network. They can be paid in Ether, the only inter-platform currency of Ethereum. DAPPs might create ERC-20 tokens to function as a currency, a share in the company, for points in a loyalty program, or even proof of ownership (i.e., an amount of gold or the deed to a house), depending on its purpose.
Ethereum has become one of the driving forces behind the growth of cryptocurrency since its inception in 2015. Initial Coin Offerings (ICO) have raised billions of dollars in funding for cryptocurrency projects from startups across the world, and most of these ICOs are based on the Ethereum platform. Buyers contribute Ether (ETH) or Bitcoin to participate in a crowdfunding sale and in return receive some of the ICO project’s native tokens.
Popular ERC-20 tokens list
Many crypto newcomers are surprised to discover just how prevalent ERC-20 tokens are. Take a look at a list of the top 20 ERC-20 tokens by market cap as of this writing.
If you want to check the full list, you may go to this website for reference: https://en.cryptonomist.ch/erc20-tokens-list/
Final Note
ERC-20 makes the creation of new tokens extremely easy and that is why Ethereum has become the most popular platform for ICOs in 2017. Some of the major benefits of ERC-20 tokens include the following:
- Enhances token liquidity
- Reduces risk of contract breaking
- Reduces the complexity of token interaction
- Uniform and fast transaction
- Confirms the transaction more efficiently
Having these said, this isn’t make ERC-20 perfect either as there is no such thing as one-size-fits-all. There are some issues that ERC-20 token standards do not address. There are situations that tokens might be unintentionally destroyed when they are used as payment for a smart contract rather than using Ether. An estimated $3 million has been lost because of this.
To fix this bug, the Ethereum community is currently working on a new standard named ERC-223. These standards are not compatible with ERC-20, however, so developers are encouraged to continue using ERC-20 until compatibility is realized. (We will monitor the progress of this upgrade and that’ll be another article to watch out for soon).
For the time being, there’s still no traditional security approach to fix these vulnerabilities. Nonetheless, today ERC-20 remains a crucial aspect of Ethereum, and is likely to continue wielding massive influence moving forward.
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