The ERC-20 token standard is one of the key concepts governing a large part of the space and which is especially relevant to smart contracts and smart properties in cryptocurrencies.
This standard refers to the scripting standard used in the Ethereum blockchain. This technical standard specifies a number of rules and actions that an Ethereum token or smart contract must follow and the steps to be able to implement them.
To note, a lot of major crypto assets and wallets were launched with this technical standard. In this case, the token standard will standardize the core functionality of each token, meaning all tokens created using the framework are interoperable with each other as well as all services compatible with this standard, such as MyEtherWallet and MetaMask wallets.
Meanwhile, major crypto assets that use this technical standard include Polygon (MATIC), Shiba Inu (SHIB), and Tether (USDT). ERC itself stands for “Ethereum Request for Comment” and the ERC20 standard was implemented in 2015 and officially recognized in September 2017.
Ethereum Network Has ERC-20 Token Standard
As mentioned above, the Ethereum network does have an ERC-20 token standard. This is because the ERC20 token is the standard used to create and issue smart contracts on the Ethereum blockchain. Furthermore, these smart contracts can be used to create smart properties or tokenized assets that people can invest in.
This token is present as a technical standard token, which will later be used for all smart contracts on the Ethereum network. Its purpose is to simplify token deployment and provide a list of rules that all Ethereum based tokens must follow.
These tokens are also often considered a “blueprint” of crypto assets, meaning that anyone can create them. To date, most of the crypto assets circulating in the crypto asset trading market are created by organizations and companies that use this token standard.
Understanding the ERC-20 Token Standard and How It Works
Although attached to the Ethereum network, ERC20 and Ether are not the same. The reason is, Ether is the native currency of the Ethereum platform, while ERC20 is the standard for certain types of tokens.
Therefore, other people can use this standard to generate more ERC20 tokens and they will all have different token names. Moreover, to use the ERC20 token, the platform must have an Ethereum base.
For that reason, one cannot use this token on other platforms, such as Hyperledger Fabric, as one will only be able to issue it on Ethereum. Typically, these tokens are sold through a variety of different offerings. It is a way to raise early-stage capital for the underlying project.
The way it works is as follows:
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Total Supply
The total amount of token supply created.
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Transfer
It is possible for players to send tokens in a certain amount from the total supply to other people’s accounts.
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Balance Of
A function to return a certain number of tokens to the account from an existing address.
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Transfer From
This function makes it possible for a user to know the origin of the user who transferred the token.
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Approve
A function to check transactions from the total token supply to ensure the amount sent is appropriate.
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Allowance
Function to check the balance in the user’s account. This also makes it possible for users to cancel transactions if the number of tokens sent is less than the previously agreed nominal.
Uses of ERC-20
So, what can users do with this token? Here is a list of their uses.
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Crowdfunding
Sometimes Ethereum app makers choose to raise money for their projects through crowdfunding. Therefore, in return, investors will receive the newly minted tokens before the official launch at wholesale prices.
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Voting rights
These tokens can be used to vote on project decisions. Correspondingly, the more token users, the more influence they have on each election.
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Representing a physical object
Tokens can represent ownership of an asset, such as gold.
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Transaction fees
As for every Ethereum transaction, including token transactions, it includes the option to pay a fee. When the network is congested, a fee (known as a gas fee) can help drive transactions faster. Later, the fee is deducted from the total user token.
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New features
Oftentimes too, developers need tokens to pay for the functionality of their projects. However, Ethereum’s native token, Ether, is not sufficient for that. Therefore, they then create a new token with the functionality that is really needed.
