What are ERC-20 tokens? | CryptoNewsHerald explains

Key points about ERC-20

• ERC-20 is a popular standard for smart contracts on the Ethereum blockchain. It is a set of rules that must be followed when developing a contract that is responsible for the parameters and emission of a new custom token.
• This standard has greatly simplified the process of creating new cryptocurrencies.
• Different ERC-20 tokens can be transferred and stored at the same address on the Ethereum network.
• The emergence of the ability for any developer to issue their digital asset without the need to launch a separate blockchain was a turning point in the history of cryptocurrencies.

What does the abbreviation ERC-20 mean?

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

How and when did the ERC-20 appear?

Proposal to introduce a single standard for custom tokens for the first time published in November 2015. Its authors are Ethereum creator Vitalik Buterin and developer Fabian Vogelsteller.

ERC-20 has become a guide to creating fungible tokens (orig. Fungible Tokens) – identical tokens that can be exchanged for each other.

Even though ERC-20 tokens operate within the framework established by the Ethereum team, this framework is quite broad, giving developers more flexibility when creating them.

Why was the ERC-20 standard needed?

Bitcoin set the paradigm for other crypto projects: in order to issue any digital currency, you must first launch a separate blockchain.

Ethereum broke this rule. With the help of smart contracts, any developer has the opportunity to issue their own token and give it unique useful features within their application.

However, before the advent of ERC-20, there was a compatibility problem between different tokens, because each of them had a unique smart contract. In other words, in order for an exchange or wallet to support a token, its creators had to write completely new code each time.

Thus, supporting a growing number of tokens became more and more problematic, taking too much time. To solve this problem, a standard protocol was created for all tokens.

ERC-20 has greatly simplified and unified the issuance of tokens within the same network. This standard, along with smart contracts, has become a universal way to create and monetize applications using the blockchain. So Ethereum became the first blockchain platform in history.

Which tokens have the ERC-20 standard?

Many popular cryptocurrencies have the ERC-20 standard. It is especially common in the field of decentralized finance (DeFi) and related areas. In addition, ERC-20 is used for governance tokens in popular crypto projects. Here are just 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 tokens?

Popular wallets for ERC-20 tokens are Metamask, Trust Wallet, Exodus, MyEtherWallet. The interface of some wallets only shows the balance of ETH, although the address can also hold ERC-20. In this case, you just need to export it to a wallet with full support for the required asset.

Where can I see the details of the ERC-20 translation?

Details of transactions with any ERC-20 token can be viewed in the Ethereum block explorer, for example in Etherscan. There, in separate section, there is on-chain data on all assets of this standard. The token page shows the number of holders, the distribution of tokens for each address, and a link to the smart contract of the asset.

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

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

Required parameters include:

• the totalSupply function, which is responsible for the total emission of tokens, ensuring that new tokens cannot be created when the maximum number is reached.
• balance0f defines the initial number of tokens assigned to a particular address. This is usually an address owned by the issuer.

The standard also describes two methods for moving tokens. The transfer function ensures the transfer of tokens to users, while transferFrom is required for asset transactions.

Two more functions are needed to verify the two previous methods of moving tokens:

• approve is used to check that the smart contract, based on the total emission, can distribute tokens;
• allowance is needed to check if there is enough balance to send tokens to another address.

Among the optional parameters are the name of the token and its ticker, as well as the definition of the maximum number of decimal 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.

What are the risks of using ERC-20 tokens?

Since ERC-20 tokens are actually smart contracts, they, despite their effectiveness, have certain risks. For example, a smart contract cannot be modified once it has been initiated. It may also contain bugs and vulnerabilities.

One of the most famous cases of this kind is the hacking of The DAO project, as a result of which investors’ cryptocurrencies were stolen in the amount of $50 million and the consequences of which had to be eliminated using the Ethereum hard fork.

In rare cases, this standard is used by scammers: they deliberately include such parameters in the smart contract code of their token, with the help of which they then steal the funds of holders or implement the Pump & Dump scheme.

FAQ

What is an ERC-20 Wallet?

This is a special application for the storage and transactions of cryptocurrencies, in which you can conduct transactions with ERC-20 tokens. Usually this is any wallet with declared support for the Ethereum network.

What is the difference between ERC-20 and TRC-20?

ERC-20 is the standard for tokens issued on the Ethereum blockchain, while TRC-20 are cryptocurrencies that are created on the Tron blockchain. The most famous TRC-20 token is the Tether (USDT) stablecoin, which is also issued on other blockchains.

What is the difference between ERC-20 and BEP-20?

BEP-20 is the standard for tokens on the BNB Chain (Binance Smart Chain) blockchain, while the ERC-20 standard can only be used by cryptocurrencies on the Ethereum network.

What is ERC?

ERC is short for Ethereum Request for Comment, a standard for code updates in the Ethereum protocol. Each update has its own serial number. The ERC-20 update was adopted in 2017, and it was it that introduced the standard for tokens that is popular today on the Ethereum network.