Everything You Need to Know About the Ethereum Token Standard ERC-20

The ERC-20 token standardhas become a cornerstone of the cryptocurrency industry. Its creation has led to the emergence of many coins in the crypto market, without which it is difficult to imagine the existence of the industry today.

What is ERC-20?

ERC-20, or Ethereum Request for Comments 20, is a technical standard that defines rules for creating tokens based on the Ethereum blockchain. This standard was developed through the Ethereum Improvement Proposal (EIP) process, specifically EIP-20, which highlights its significance in standardizing smart contracts and facilitating token development. The number signifies the proposal’s order, meaning ERC-20 is the 20th proposal for improving Ethereum.

The token standard establishes basic rules, functions, and methods for creating and circulating tokens. This “code of conduct” ensures their compatibility with various wallets, exchanges, and services.

ERC-20 tokens are represented by smart contracts — digital analogs of traditional contracts where developers define the operational rules of tokens. This technology automates transactions involving digital assets.

❗ Interestingly, the standard proved to be so effective and in demand that teams from other crypto projects attempted to create similar standards. For example, Tron has the TRC-20 standard, while Solana uses SPL.

Introduction to ERC-20

ERC-20 is a technical standard for creating and managing fungible tokens on the Ethereum blockchain. This standard provides a set of rules that ensure tokens function properly within the Ethereum ecosystem, making them compatible with various wallets, exchanges, and decentralized applications.

ERC-20 tokens have become a cornerstone in the world of decentralized finance (DeFi), gaming, and social media platforms, enabling developers to create and deploy a wide range of token-based applications. The simplicity and effectiveness of the ERC-20 standard have been instrumental in the rapid growth and adoption of the Ethereum ecosystem.

Who Created the ERC-20 Ethereum Improvement Proposal?

The ERC-20 standard was proposed by developer Fabian Vogelsteller and Ethereum co-founder Vitalik Buterin in 2015. ERC-20 tokens are foundational for creating interoperable tokens within the Ethereum ecosystem, leveraging the Ethereum Virtual Machine. It was adopted by the project’s community and has since become the most widely used standard for creating tokens on Ethereum.

The discussion about the development can be read on Reddit via the link.

Understanding ERC-20

ERC-20, short for Ethereum Request for Comment 20, is a proposal that outlines a common set of rules for creating and managing tokens on the Ethereum blockchain. Proposed by Fabian Vogelsteller in 2015, ERC-20 has since become the most widely used token standard on the Ethereum network. One of the key features of ERC-20 tokens is their fungibility, meaning each token is interchangeable with another of the same type. This standard provides a set of functions and events that must be implemented in a smart contract to create an ERC-20 token, ensuring consistency and interoperability across the Ethereum ecosystem.

Creating and Interacting with ERC-20 Tokens

Creating an ERC-20 token involves deploying a smart contract on the Ethereum blockchain. This smart contract must implement the ERC-20 standard, which includes essential functions such as transfer, balanceOf, and totalSupply. Once the contract is deployed, users can interact with the token by sending transactions to the contract address.

These transactions require payment of transaction fees in ETH, with the gas limit determining the computational effort needed to execute the transaction. Users can manage their ERC-20 tokens using various wallets and exchanges, making it easy to transfer tokens, check balances, and participate in the broader Ethereum ecosystem.

ERC-20 vs. Other Token Standards

While ERC-20 is the most widely used token standard on the Ethereum blockchain, it is not the only one. Other standards, such as ERC-223 and ERC-721, offer additional functionality and cater to different use cases.

For instance, ERC-223 addresses issues related to token reception, while ERC-721 is designed for creating non-fungible tokens (NFTs), which are unique and cannot be exchanged on a one-to-one basis like fungible tokens. Despite the availability of these other standards, ERC-20 remains the most popular due to its simplicity, widespread support, and proven track record within the Ethereum network.

Security Considerations for ERC-20 Tokens

ERC-20 tokens are stored on the Ethereum blockchain using smart contracts, which, while secure, come with their own set of security considerations. Smart contracts can be vulnerable to reentrancy attacks and other exploits if not properly coded. Users must exercise caution when sending transactions to avoid losing tokens, especially when dealing with multiple tokens and complex smart contracts.

Following best practices, such as conducting thorough code audits and using reputable wallets and exchanges, is essential for securely managing ERC-20 tokens. By adhering to these guidelines, users can minimize risks and ensure the safe handling of their digital assets.

Advantages and Disadvantages of the Standard

The main advantage of the ERC-20 standard is its universality and wide support within the Ethereum ecosystem. These tokens are easy to exchange and integrate with various services.

Another advantage of ERC-20 is its relative simplicity. Developers can create their tokens using the Solidity programming language by following Ethereum’s guidelines.

ERC-20 tokens also play a significant role in loyalty rewards systems where users earn reputation points for their activities, such as making bookings. These reputation points can offer additional benefits like VIP services or a stake in governance, and they hold potential value as they can be traded among users.

❗ It is not necessary to be a programmer or know how to code to create an ERC-20 token; there are automated platforms available that can handle most of the work.

However, among the disadvantages of ERC-20 is its limited functionality. For instance, the standard does not allow for complex scenarios to be executed. Consequently, more functional and advanced token standards like ERC-1155 have started to emerge.

Despite its drawbacks, ERC-20 remains one of the most popular and widely used standards for creating tokens on Ethereum.

Where to Store ERC-20 Tokens

ERC-20 tokens can be stored in various types of cryptocurrency wallets, including exchange wallets, mobile wallets, and hardware (cold) wallets.

Before selecting a wallet, ensure it supports your desired standard and coin.

Most Popular ERC-20 Tokens

As of this writing, there are over a thousand ERC-20 tokens on the market. Among them, the most capitalized is Tether (USDT), which also leads in terms of holders and daily trading volume. ERC-20 tokens are widely used across various areas of the cryptocurrency market, including decentralized finance (DeFi).

The demand for this standard and the simplicity of token creation according to its rules are reasons for the continuous growth in the number of such coins.

The Role of ERC-20 in ICO Fever

ERC-20 played a major role in the ICO (Initial Coin Offering) boom of 2017. Many startups used this standard to create and sell their tokens to investors as a means of raising funds.

Proposed by Ethereum developers, ERC-20 simplified the process of conducting ICOs — analogous to an IPO (Initial Public Offering) and investing in crypto projects.

Conclusion

The ERC-20 standard plays a key role in the Ethereum ecosystem. It ensures standardization and compatibility of tokens while occupying an important place in the DeFi market. Despite more modern alternatives being available, ERC-20 remains one of the most widely used standards for creating tokens on the Ethereum blockchain.

Frequently Asked Questions About ERC-20

1. What is the ERC-20 standard?

- ERC-20 is a technical standard that defines rules for creating tokens based on Ethereum.

2. What functions does the ERC-20 standard support?

- The ERC-20 standard specifies basic functions such as transferring tokens, checking balances, and obtaining total token supply.

3. Can I store ERC-20 tokens on an exchange?

- Yes, many cryptocurrency exchanges support ERC-20 tokens and provide storage and trading options.

4. How do I create an ERC-20 token?

- An ERC-20 token can be created by writing a smart contract that complies with the ERC-20 standard using Solidity programming language.

5. What other Ethereum token standards exist?

- Besides ERC-20, there are other standards like ERC-721 (for NFTs) and ERC-1155 (for creating different types of tokens within one smart contract).

6. Can I burn or freeze ERC-20 tokens?

- Yes, token developers can implement burning or freezing functions through smart contracts according to project requirements.