The world of cryptocurrency presents investors and newbies with several opportunities that might initially seem confusing. Especially to an average investor or a newbie without technical knowledge of how the blockchain and Smart contracts work. With new tokens being listed every day, experts need to be well-aware of the different token standards, and other necessary information to avoid being scammed.
There are several token networks located on the blockchain, some of them include BEP2, BEP20, ERC721, and ERC20. Speaking on the ERC20 network specifically, you should already know that it is hosted or connected to the Ethereum blockchain. Ethereum is a popular Blockchain network (after Bitcoin) that was designed to allow developers and enthusiasts to seamlessly create a decentralized application, and launch it on the ERC blockchain.
You should also know that several cryptocurrencies make up the ERC-20 and other tokens. These coins can be traded and purchased; while being powered by Ether. It is also used in settling transaction fees for transfer, purchase, and other network services. Miner rewards and smart contract sponsorships are also derived from the use of the ERC20 token.
What Is The ERC-20 token?
The ERC-20 is a network that is respected as the technical standard for all smart contracts and fungible tokens that have been developed on the Ethereum blockchain. The ERC network provides a list of laid-down standards that each token hosted on its network must follow. Such standards include the method of transfer, transfer approval, supply and market cap, and also data management.
In summary, the ERC-20 provides a unique property that all tokens under its umbrella must possess, either in type or value. You must also know that a token could represent anything in Ethereum; it could be a lottery ticket, an ounce of gold, fiat currencies, skills, or playable characters in a video game. These features, however, can’t be allowed to operate uniquely, hence the need for the ERC-20.
History of the ERC-20
The ERC-20 (Ethereum Request for Comments 20) was proposed by Fabian Vogelsteller in November 2015. The token serves as a standard that implements an API for tokens that didn’t have any smart contracts at a particular time. It also provided functionalities that enabled the transfer of assets from one account to the other, to generate the current token balance and other features.
To create a suitable standard for this type of Ethereum (ERC-20), the developers must submit an Ethereum Improvement proposal (EIP). The EIP describes the new features, specific protocols, standards, and functionality that will be incorporated into the projects under the specified token (ERC-20). Smart contracts and other Ethereum-based features are also obligated to do so. To date, ERC-20 is still the best in terms of security and speed, even if there are several others in existence.
Importance of the ERC-20
‘ERC-20’ stands for ‘Ethereum Request for Comment 20’, it is an updated version of the original ERC network, with ‘20’ being its latest version. The ‘request for comment’ is a concept that was devised by the Internet Engineering Task Force. It was designed as a means of conveying important technical standards, quotes, and requirements to a set of users or developers.
- Simplicity- it makes the coding process and transaction storage/documenting easier.
- Anti-Scam- it reduces the number of scams that occur online.
- New Token Activation- Once a token is listed on ERC-20, its universal standard permits it to add new tokens to the exchange that it has been transferred to. When you receive a set amount of tokens that you haven’t added to your wallet, it is automatically updated in your wallet.
- Security- It ensures the security of exchanges and wallets.
What Are the ERC-20 Standards?
For smart contracts executed on the Ethereum Blockchain, there are certain rules that must be incorporated before they can be ERC-20 compliant. These rules include:
Balance Of- this rule allows users and investors to understand the number of tokens that a particular address holds.
Transfer- after completing all the necessary checks, the transfer function will complete the transaction by executing the exchange.
Approve- this standard ensures that the contract owner has approved the user to accept the tokens from the contract’s address. It also helps to check the transaction and balance with the supply of tokens to avoid any fraudulent transactions.
Total Supply- it identifies the total supply of an ERC-20 token that has been created per project.
Allowance- this rule is used to determine the validity of a user’s transactions, and the minimum amount required for a transaction.
Transfer From- this standard is for recurring transfers, and staking options, as well as automated payments to an external party.
List of Tokens Hosted On the ERC-20
The tokens listed on ERC-20 are more popular than that of any other network. Although they might be rather expensive to list, they are sure to thrive under the wings of the popular Ethereum token. Here are some of the top tokens listed on ERC-20.
- Ox (ZRX)
- Shiba Inu (SHIB)
- Tether (USDT)
- Chainlink (LINK)
- Basic Attention Token (BAT)
- Golem (GNT)
- Loopring (LRC)
- Wrapped Bitcoin (WBTC)
- Augur (REP)
- Maker (MKR)
Pros and Cons of ERC-20 Tokens
- Flexibility: ERC-20 tokens can be customized and tailored for a series of different applications. They can be used in games, NFTs, and even loyalty programs, as a digital collectible.
- Cost: compared to any other token, the ERC-20 is very expensive; therefore, making it hard to mint NFTs or list tokens. This feature tends to drive potential developers and even scammers away.
- Scalability: as mentioned earlier, the cost of transactions on the ERC-20 network is highly expensive, and the token network experiences a lot of delays. Hence, we can say it is not immune to the growing needs of its users. However, its developers are working tirelessly to reduce the growing costs, while ensuring speedy transactions.
Is there a way to make a counterfeit token?
Not really, at the moment the system is secure because the standard checks the transactions against the total circulation capacity of tokens.
How can I get ERC-20 tokens from other users?
The [transferFrom] standard of the ERC-20 allows users to transfer cryptocurrencies between themselves, as long as the said token is listed on the ERC-20 network.
What is Ethereum?
Ethereum is a decentralized network that can record transactions, and produce smart contracts. The token network “Ethereum” is also able to support decentralized applications, also known as DApps.