What is ERC20 Standard?

In the cryptocurrency world, Ethereum has carved a unique niche for itself. While Bitcoin has revolutionized digital money and primarily acts as a 'Store of Value' or 'currency' for peer-to-peer transactions, Ethereum brought something new to the table - the ability to create and manage smart contracts and tokens. It has led to a surge of innovative decentralized applications (dApps) and incubated many groundbreaking technologies such as DeFi, Play to Earn, etc.

One such innovation is the ERC20 standard, which has become the backbone for most tokens on the Ethereum blockchain. 

What is Ethereum?

Ethereum is a decentralized, open-source blockchain system that supports smart contracts. Unlike Bitcoin, which is primarily a digital currency, Ethereum enables developers to build and deploy decentralized applications (DApps) on its platform. 

Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Ethereum is the second-largest cryptocurrency platform by market capitalization, just behind Bitcoin.

Ethereum's unique proposition lies in its ability to execute smart contracts - self-executing contracts where the agreement terms are pre-determined and embedded directly as a code on the blockchain. This feature has opened up a new world of possibilities, from decentralized finance (DeFi) to Non-Fungible Tokens (NFTs).

What is Ether?

Ether ($ETH) is the native cryptocurrency fueling the Ethereum platform. It's used to compensate participants who perform computations and validate transactions on the network, a process known as mining. Also, Ether is used to power the operations of the distributed applications (dApps) on the Ethereum network.

In layman's terms, Ether acts as the "gas" (fuel) for the Ethereum ecosystem. It's used to pay for transaction fees and computational services on the Ethereum network. You must pay a fee for the computation when you send tokens, interact with a contract, transfer ETH, or do anything else on the blockchain. That payment is known as gas and is paid in ETH on the Ethereum blockchain.

What are Crypto Tokens?

Crypto tokens, particularly in the context of Ethereum, represent a specific asset or utility that resides on the blockchain. These tokens are often used to raise funds in a crowd sale or IDO. They enable the creation of a wide array of decentralized applications (DApps), from games to decentralized exchanges.

Tokens are a versatile tool in the Ethereum ecosystem. Crypto tokens can represent anything from a fungible or tradable asset to a service and can even be used as a voting power. They can be loyalty points, speculative assets, financial instruments, etc. Tokens can be bought, sold, or traded at their own price independent of Ether or the currency of any blockchain they reside on.

What is The Difference Between Crypto Coins and Crypto Tokens?

While the terms "coin" and "token" are often used interchangeably in the crypto world, they represent different concepts. A crypto coin, like Bitcoin or Ether, operates on its blockchain. On the other hand, a crypto token operates on an existing blockchain and represents an asset or utility. Basically, coins are used as money, while tokens have a more comprehensive range of functionalities.

Coins are native to their blockchain. That means coins like Bitcoin (BTC), Ether (ETH), or Solana (SOL) have their own independent transaction ledgers. On the other hand, Tokens leverage an existing network's infrastructure and security. ERC20 tokens, for instance, operate on the Ethereum blockchain.

What is ERC20 Standard?

ERC20 stands for Ethereum Request for Comments (unique proposal ID number) 20, and it is a technical standard used for smart contracts on the Ethereum blockchain for creating tokens. It provides a list of rules all Ethereum-based tokens must adhere to, ensuring interoperability between tokens on the Ethereum network. The majority of tokens issued on the Ethereum blockchain are ERC20 compliant.

ERC20 standard defines a total of nine rules, out of which six are mandatory functions and three are optional. These are fundamental functionality issues, including how tokens are transferred and how users can access data about a token. The ERC20 standard has been instrumental in the explosion of Initial Coin Offerings (ICOs) and, later, Initial DEX Offerings (IDOs), as companies have a standardized way of creating new tokens.

Properties of ERC20 Tokens

ERC20 tokens are designed to be fungible, transferable, and have a fixed supply. They follow a list of standards so that they can be shared, exchanged for other tokens, or transferred to a crypto wallet.

These tokens are fungible, meaning each token is identical to every other token; this is why they work so well on the Ethereum network. ERC20 tokens are also transferable and have a fixed supply.

This standardization has made ERC20 tokens a cornerstone in the Ethereum ecosystem and a key component in many decentralized applications.

ERC20 tokens have the following properties:

  • Fungibility: Each token is identical to every other token; this is why they work so well on the Ethereum network.
  • Transferability: They can be sent from one address to another like any other cryptocurrency.
  • Fixed Supply: A fixed number of tokens must be created so developers cannot issue more tokens and raise the supply.

Examples of ERC20 Tokens

There are thousands of ERC20 tokens in existence today. Some of the most well-known include:

  • USD Coin (USDC): A stablecoin pegged to the US dollar.
  • Chainlink (LINK): A token that powers the Chainlink decentralized oracle network.
  • Binance Coin (BNB): Started as an ERC20 token before moving to its own blockchain.

Wrapping Up

The ERC20 standard has revolutionized the landscape of cryptocurrency and opened the door for countless innovations. Its ability to interact seamlessly with other tokens and platforms has made it a standard in the industry. As Ethereum continues to grow, so too will the influence and importance of ERC20.

ERC20 Development Services

At AuroBlocks. We help companies develop ERC20 token, which has clear utility within their ecosystem, a fair distribution mechanism, strong community support, and robust security measures.

We also assist in listing your tokens or cryptocurrencies on major exchange and merchant platforms. If you're looking for ERC20 token development services, schedule a free consultation with our team today, or email us to discuss your project. 

Frequently Asked Questions

What is the difference between ERC20 tokens and Ether?

Ether is the native cryptocurrency of the Ethereum platform, used to pay gas for transaction fees and computational services on the network. ERC20 tokens, on the other hand, are sub-tokens built on the Ethereum ecosystem, adhering to a specific standard so they can interact seamlessly with other tokens and DApps on the Ethereum network.

How are ERC20 tokens created?

ERC20 tokens are created on the Ethereum platform using a smart contract. This contract stipulates the rules and properties of the token, including the total supply and how the tokens can be transferred.

What are the advantages of using ERC20 tokens?

ERC20 tokens have become popular due to their interoperability with other products and services in the Ethereum ecosystem. They can be easily exchanged for other tokens or used as payment in various applications.

What are some popular ERC20 tokens?

Some popular ERC20 tokens include USD Coin (USDC), Shiba Inu (SHIB), Chainlink (LINK), Uniswap (UNI) etc, along with thousands of other ERC20 tokens.

Can ERC20 tokens be used outside the Ethereum platform?

While ERC20 tokens are native to the Ethereum platform, they can be bridged to EVM-compatible and EVM-based chains. Also, they can be traded on any exchange that supports them. Additionally, they can be stored in any wallet compatible with the Ethereum network.

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