ERC-20: Everything you need to know

ERC-20 is a widely used technical smart contract standard for implementing and issuing cryptographic tokens on the Ethereum blockchain.

Since Ethereum was founded by Vitalik Buterin in 2014, the open source platform has become the favorite platform for developers of decentralized applications (DApps). With the increase in DApps development, technical standards have become essential. Finally, ERC-20 was created to provide a standard framework for developers.

Smart contracts used in Ethereum are programs that automatically execute functions that constitute regular contracts or rules. ERC-20 is the most important Ethereum smart contract standard. To learn more about smart contracts, check out this beginner’s guide.

You may be wondering, “How did they come up with this ERC and 20?” Let’s think about that first. ERC (Ethereum Request for Comment) is a technical process initiated by the Ethereum developer community to propose new standards.

Developer Fabin Vogelstellar shared the proposal in 2015 in the 20th comment on the Ethereum GitHub page. As a result, the technical standard was named ERC-20.

Vogelstellar’s ​​proposal was approved by the Ethereum developer community in 2017. After approval, this proposal was implemented as Ethereum Improvement Proposal 20 (EIP-20). However, this effective proposal is still referred to as ERC-20, the proposal’s original name.

According to a report submitted to Yahoo! 2018 Finance All Market Summit , initial coin offerings (ICOs) raised $3.2 billion at the end of 2017.

Additionally, ICOs outraised VC funding by a factor of 16. Thanks to the introduction of ERC-20.

Characteristics of the ERC-20 standard

As explained above, regarding the implementation of the ERC-20 standard, let’s also take a look at its salient characteristics.

• The ERC-20 standard allows for smooth transfer of tokens from one account to another without complications.
• Using the ERC-20 standard, you can check the current token balance of any cryptocurrency account.
• Users can see the total supply of a particular token available on the Ethereum blockchain network.
• You can also approve or deny the number of tokens used by other third-party accounts.
• Apart from that, once the ERC-20 token contract is deployed, all tokens created on Ethereum are properly tracked.

Contents of the ERC-20 standard

ERC-20 consists of various events and functions that cryptographic tokens must implement. This standard is also responsible for the governance actions performed by smart contracts. The main features and information needed to create an ERC-20 compliant token are:

• TotalSupply: The total number of cryptographic tokens that the developer plans to issue.
• BalanceOf: Represents the account balance available in the token holder’s account. This feature allows you to query the balance of a known address.
• Transfer: Used to automatically transfer a specified number of tokens to a specific crypto address.
• TransferFrom : This function allows you to transfer the specified token from a specific cryptographic address. Additionally, you can use TransferFrom to authorize others to transfer funds on your behalf.
• Authorization: Users can use this feature to keep a certain number of tokens as a withdrawal limit. This feature allows you to limit the risk of all tokens being wiped out in case of spam submissions.
• Allocation: Allocation functions can provide a contract grant that returns a certain number of tokens from the spender to the owner.

ERC-20 tokens: how are they created?

ERC-20 tokens consist of fungible tokens or cryptocurrencies built using the ERC-20 standard on the Ethereum blockchain. Ethereum has helped developers and entrepreneurs build hundreds of crypto tokens and projects.

ERC-20 tokens use Ethereum addresses for all transactions, and the Ethereum blockchain is used to store data. The implementation of the ERC-20 standard has led to a surge in the development of crypto-based projects and transactions worth billions of dollars or more.

Creating an ERC-20 token is easy, so just creating a crypto token is worth nothing. According to etherscan.io , over 600,000 ERC-20 token contracts have been created as of this writing. Most of the tokens created are failed projects, hobbies, or just tokens with no value.

Now that we’ve talked about ERC-20 tokens, let’s take a look at what it takes to create such a token.

#1.Define token properties

The main objective of a token creator is to have a good definition and goal behind token creation. Suppose you are looking for investors for a particular token-based crypto project. In that case, you must define properties that match the ERC-20 standard. You must specify:

• Total supply of tokens.
• Token name and symbol.
• Total number of decimals required.

There are many platforms that help you create basic tokens with the ERC-20 standard. However, suppose you plan to build a token with more advanced features and use cases. In that case, you should consult a professional crypto development team.

#2. Develop a smart contract

As explained at the beginning, Ethereum uses smart contracts to execute transactions. To create the code that needs to be deployed into a smart contract, you need to code or get professional help from a programmer. A basic token generation site also creates code on the backend.

The more complex the token use case and functionality, the more complex the smart contract. If you plan to build a token for an advanced crypto project, it is best to seek professional assistance.

#3.Performing quality assurance tests

The most important thing to remember when developing crypto tokens is to avoid bugs. Because smart contracts deploy a variety of code, there is a high chance of programming errors.

We recommend finding errors before deploying smart contracts to avoid future problems. You can run multiple tests using test blockchains such as Ropsten or Rinkeyby.

#4. Introducing smart contracts to blockchain

Finally, after eliminating the possibility of technical errors, we deploy the smart contract to the blockchain. This last step is the simplest step related to token creation. Execution takes just a few clicks.

Once the smart contract is successfully deployed, you become the proud owner of your tokens. Apart from that, you can also take advantage of the benefits of ERC-20 tokens. Still wondering about the functionality of ERC-20 tokens? Don’t worry; we’ll explain more about it.

Characteristics of ERC-20 tokens

Now that we have talked about ERC-20 tokens and their creation, let’s understand the important characteristics of these tokens.

#1.Alternative possible

Fungibility is a hallmark of ERC-20 tokens. This means that one token can be exchanged for another. This feature allows users to exchange tokens without any complications.

Additionally, the fungible nature of tokens also helps different crypto projects connect and collaborate, regardless of the token type. As a result, fungible ERC-20 tokens played a key role in Ethereum’s adoption.

#2.Flexible

ERC-20 tokens are one of the most flexible forms of tokens. You can customize your tokens according to your crypto project’s use case. If you want a meme token without a real-world use case, you can also build a simple token.

Suppose you are an entrepreneur building a crypto project that solves multiple problems. In that case, you can also customize the token for multiple use cases. A single token can function as loyalty points, in-game currency, digital collectibles, or property rights.

#3.Compatible

ERC-20 tokens can be used across multiple platforms, wallets, exchanges, and projects without any additional effort. For example, you can exchange tokens with a friend within seconds using two different platforms.

ERC-20 tokens can be easily transferred from one person to another using an Ethereum wallet. The sender must provide the recipient’s unified wallet address. If the transaction is successful, the recipient’s wallet will be credited with ERC-20 tokens.

#4.Unique name and symbol

ERC-20 tokens are created using specific names and symbols. This feature plays an important role in token identification. For example, creating a token with a unique name makes it easier for others to find it across the various platforms listed.

The token symbol along with the token name helps distinguish it from other similar tokens. The most common tokens use 3 to 4 characters to represent the token symbol.

For example, Enjin Coin’s token symbol is ENJ. You can use “ENJ” to search for token prices, smart contract addresses, transaction details, etc.

Popular ERC-20 tokens

Curious about popular ERC-20 tokens?

Let’s check the tokens that correspond to the list.

1. Tether (USDT)
2. US dollar coin (USDC)
3. Binance Coin (BNB)
4. Binance USD (BUSD)
5. Wrapped Bitcoin (WBTC)
6. Hex (HEX)
7. Shiba Inu (SHIB)
8. Dai (DAI)
9. Matic Token (MATIC)
10. Theta Token (THETA)

Disadvantages of ERC-20 tokens

Now you might be excited about the ERC-20 standard and the positive aspects of its tokens, right? That’s good, but let’s also take a look at some of the drawbacks of tokens developed using ERC-20. Let’s.

1. Poor scalability due to congestion in the Ethereum network.
2. Minimal effort to create tokens helps create fraudulent crypto tokens.
3. Transaction speed is slow.
4. High transaction fees.

Other major ERC standards

ERC-20 is the most popular and widely used Ethereum standard, but there are many other ERC standards. Common ERC standards are:

• ERC-721: This standard was proposed for issuing NFTs. ERC-721 was created because non-fungible tokens cannot be exchanged or transferred using the fungible ERC-20 standard. In other words, ERC-721 is an NFT standard.
• ERC-777: The ERC-777 standard allows for emergency recovery functionality in case the private key is lost. Apart from that, this ERC standard increases the privacy of transactions.

• ERC-1155: This standard can be used to build tokens that provide more efficient transactions. Therefore, ERC-1155 saves a lot of transaction fees. Apart from that, this standard can also be used to create non-fungible or utility tokens.
• ERC-223: For ERC-20 tokens, sending the token to the wrong address will cause the token to be lost forever. Here, ERC-223 offers a meaningful solution. If you send an ERC-223 token to the wrong smart contract that cannot handle the token, the transfer will fail and the token will be returned.

summary!

The ERC-20 standard has had a revolutionary impact on token developers. After the implementation of this innovative token standard, many important crypto projects and their tokens were born.

Additionally, ERC-20 paved the way for the creation of more ERC token standards that solve various problems on the Ethereum blockchain. ERC-20 tokens are very popular in cryptocurrencies, but before you buy any crypto tokens, DYOR!

Want to learn more about topics related to Ethereum? Then read about Ethereum merging.