With the evolving landscape of crypto, more and more technologies are being bonded to the platform, from decentralized apps to smart contracts, enabling a smooth and easy-to-use interface. One such major and inevitable advancement in the crypto space is ERC-20 tokens, which operate using ERC-20 standards; determining how the tokens are facilitated. In this article, we’ll get you all the information about ERC-20,
Understanding ERC-20
These are technical standards that define how an Ethereum-based token should function on the blockchain. These technical standards are applied for fungible tokens, which can be swapped with other tokens. ERC 20 standards were created to address the issue of inter operability of tokens, tokens can be created by anyone but they often fails to operate with other tokens.
With a unified standard for Ethereum-based tokens, their creation, utilization, and exchange became easy and convenient. The rules in ERC-20 standards determine how the tokens should be transferred, how the transaction should be carried out, and the total supply of tokens. It is an abbreviation for ‘Ethereum Request for Comment 20’, proposed by Fabian Vogelstellar in 2015.
What Led to the Development of ERC-20?
Smart contracts are an integral part of decentralized networks, automating transactions and other functionalities when a predetermined condition is met. However, they lacked many qualities, one major being the lack of interoperability. Everyone can design a token utilizing smart contracts but fails to enable interoperability, and this Standard was created to address this, allowing developers to create smart contract-enabled tokens that allow interoperability with other tokens.
In 2015, Fabian Vogelstellar submitted the ERC-20 proposal through the GitHub page as an Ethereum Request for Comment, since it was the 20th comment it was then known as ERC-20. The proposal was approved and came into effect in 2017 as Ethereum Improvement Proposal 20 (EIP-20), but it is still popular as ERC-20. And from then the smart contract tokens created on the Ethereum blockchain have to abide by this standard to make it interchangeable.
Contents of ERC-20 Standard
The ERC-20 standard defines the set of rules that an Ethereum smart-contract-enabled token should pose. The standard includes six mandatory conditions and 3 optional conditions to abide by the smart contract code while creating this token. Below we list the contents included in the ERC-20 standard.
Mandatory Functions
- Total Supply: Defines the total number of tokens issued for a specific project.
- Balance Of: Gives information about the remaining tokens in a particular address.
- Transfer: Enables transaction of tokens from one account to another automatically.
- Approve: Allow one address to approve another address on their behalf.
- Transfer From: It allows an address to execute transactions from another address automatically, only after their approval.
- Allowance: Returns the amount of tokens to the owner that has been spent on behalf of them by another address.
Optional Functions
- Name: Name of the token
- Symbol: Describes the symbol of the token
- Decimal: Describes the number of decimal places the tokens can be divided.
Popular ERC-20 Standard Tokens
1. Tether (USDT)
Tether is an ERC-20 standard token operating on the Ethereum blockchain. Launched in 2014, Tether aims to provide a stable value while pegging with other currencies. Offering fast transactions at low cost, Tether is used as a trading pair in crypto exchanges.
2. Binance (BNB)
Launched in 2017, this token Binance quickly became one of the popular cryptocurrencies among investors. The BNB token is used in the Binance platform as a medium for transaction fees and payment for services. The burning mechanism utilized by the platform increases its token demand and value. The coin has been accepted as a payment medium in different industries.
3. Aave (AAVE)
AAVE is the native token of the Aave platform, enabling holders to participate in the governance and staking mechanism of the Aave ecosystem. The governance right provides the holders an opportunity to cast votes and propose changes to the Aave protocol, facilitating community involvement and thereby decentralization.
Importance of ERC-20 Standards
ERC-20 standards define the set of rules to which an Ethereum-based fungible token must adhere. These rules enable how an ERC-20 token has to be created to promote interoperability including how the tokens are accessed, transferred, and approved. This standard helps in the accurate prediction of how a new token will operate, easing the work of developers in such a large network like Ethereum. It eliminates the need to start from scratch when a new token is released, knowing that they follow the standards and also they can continue their work without the compatibility issue. These tokens are widely used as they come with interoperability, increasing the platform’s popularity and audience.
Advantages and Limitations of ERC-20 Standards
| Advantages | Limitations |
|---|---|
| Interoperability | Lack of flexibility |
| Enhanced security | Threat of network congestion and bugs |
| Highly customizable | Requirement of gas fees |
| Transparent | Poor governance |
| High liquidity | Lack of acceptance across exchanges |
| Easy to use |
Final Thoughts
Ethereum Request for Commission is a standard set for developing fungible tokens in the Ethereum blockchain to facilitate interoperability. With these standards, developers can easily create and deploy tokens within the network and it has gained significant adoption within a short span of time. Users utilize the ERC-20 tokens for investment, trading, and creation of decentralized applications. However, not all crypto exchanges support these tokens, making it difficult to trade the token and also resulting in reduced liquidity. So it is important to do proper research on this tokens before making an investment decision.