As blockchain technology adoption goes mainstream, the creation and development of new tokens and cryptocurrencies have significantly increased.
New tokens with multiple utilities and use cases flood the cryptocurrency markets leaving investors and adopters to explore the capabilities and leverage its stores of value.
Cryptocurrencies and native tokens developed using blockchain technology follow through unique algorithmic patterns and technical standards right before it is deployed and operational on the blockchain.
One such technical standard in cryptocurrency creation is known as the ERC-20 standard.
In this article, we will delve into a full understanding of what ERC-20 is; tokens created using the ERC-20 standard, and the goals and aims of the ERC-20 standards in cryptocurrency creation.
What Is ERC-20?
ERC-20 is a set of token creation guidelines and technical standards created by the Ethereum (ETH) community.
ERC-20 can also be a set of rules and guides for developing fungible tokens that function within the whole Ethereum blockchain network.
Ethereum(ETH), also known as Ether, is a cryptocurrency that enables the development of numerous decentralized applications, including digital tokens, that, in contrast to most centralized finance systems, don't need intermediary services to function.
The ERC-20 standard has permeated nearly all areas of the cryptocurrency and blockchain industry.
Many well-known cryptocurrencies and digital tokens, such as the stablecoin Tether (USDT), Uniswap (UNI), BNB, and the top oracle service Chainlink, are all actually ERC-20 tokens.
Although anybody can create digital assets known as ERC-20 tokens, organizations and tech-focused businesses produce the majority of them.
Each ERC-20 token has a unique purpose, such as allowing users to vote on decisions that will affect the future.
New tokens launching on the Ethereum blockchain network can follow the set guidelines and standards on the ERC-20 to function seamlessly as fungible tokens on the Ethereum blockchain network.
The Ethereum blockchain network is home to a collection of ERC-20 tokens that are "Fungible." When a collection of tokens is fungible, it indicates that each token is identical to every other token in the collection.
For example, an ERC-20 token price and value in a collection of ERC-20 tokens are equal to and same as the value of every other ERC-20 token in the ERC-20 token collection.
This is comparable to how a US Dollar is practically identical and equal to every other Dollar printed in the same value category.
Each set of ERC-20 tokens on the Ethereum blockchain is identified by a ticker symbol, such as ABC or DEF.
History Of ERC-20 Standard
A veteran blockchain developer, Fabin Vogelstellar introduced the ERC-20 in 2015 to establish standards and guidelines for digital token creations on the Ethereum blockchain network.
Fabian Vogelstellar developed and submitted the ERC-20 proposal as a comment via the Ethereum community GitHub page as an Ethereum Request for Comment (ERC).
The ERC-20 proposal dropped as the twentieth comment on the GitHub page and was automatically assigned the designation ERC-20.
The ERC-20 proposal and suggestion were officially authorized and implemented in 2017 as Ethereum Improvement Proposal 20 (EIP-20), following the guidelines employed by the Ethereum developer community.
The acronym "ERC-20" was brought back and used after that since it was called ERC-20 by the Ethereum community prior to the ERC-20 proposal approval and implementation.
What Does ERC-20 Mean?
ERC-20 is an acronym for Ethereum Request For Comment. The number "20," attached to ERC, is a proposal identifier number on the Ethereum blockchain.
To better understand ERC-20, we will dissect the ERC's (Ethereum Request for Comment) information and its unique proposal identifier number.
Ethereum Request for Comments (ERC) is a digital document developers and programmers use to write smart contracts on the Ethereum Blockchain network.
It describes a set of rules and guidelines in these documents that Ethereum-based tokens must strictly adhere to.
From time to time, the Ethereum (ETH) community comes up with an 'Ethereum Improvement Proposal' to review the ERC documents.
They give feedback and drop comments on the ERC documents, which are then revised by the developer who created the ERC document.
The proposal identifier '20' represents a set of rules and technical standards for token creations unique to their own identity.
The 'ERC' (Ethereum Request For Comment) has a variety of proposal identifier numbers.
Each identifier number contains a unique set of technical standards and guidelines for token creation on the Ethereum(ETH) blockchain network.
The ERC-20 standard, amongst other proposal identifier numbers or ERC protocols, is the most utilized token-creation standard for fungible tokens on the Ethereum blockchain network.
Main Aims Of ERC-20
The ERC-20 protocol exists to regulate how digital tokens and cryptocurrencies are built and created on the Ethereum blockchain network.
It accomplishes this by creating a set of rules and technical standards for token creation on the Ethereum blockchain.
The main aim and mission of the ERC-20 protocol are to ensure that digital tokens built on the Ethereum blockchain network comply with technical standards and operational guidelines contained in its identifier number.
The ERC-20 protocol sees to it that tokens built following the technical standards of creation are fungible, transferable, and have a definite supply of tokens in circulation.
Difference Between Ethereum And ERC-20
A full understanding of terminology differences in the blockchain and cryptocurrency industry goes a long way in keeping new and existing users in this sector informed and up to date in the blockchain ecosystem.
As new users and adopters seek information on blockchain technology and cryptocurrencies, some have misconstrued what Ethereum and ERC-20 are and use the terminologies interchangeably.
What, then, is Ethereum, and what is ERC-20?
Ethereum is a decentralized and digital software that utilizes and leverages blockchain technology to create a platform for other decentralized applications and digital tokens to be built atop its blockchain network.
Ethereum network runs on second-generation blockchain technology since Bitcoin (BTC).
Ethereum was developed by Vitalik Buterin and featured a native coin known as Ether.
The native coin "Ether' is used as a mode of digital payments across the Ethereum blockchain network along with other cross-chain blockchain networks.
Ether can be used to process and pay for transaction fees incurred while interacting with the Ethereum Blockchain network.
ERC-20, on the other hand, is a set of rules and technical standards for tokens to be created and built on the Ethereum blockchain network.
Tokens created and deployed based on the ERC-20 standard on the Ethereum blockchain network are referred to as Ethereum ERC-20 tokens.
The ERC-20 tokens differ from other ERC protocols and identifier numbers as they follow a set of technical standards and guidelines unique to only ERC-20 tokens.
Difference Between ERC-20 Standard Tokens And Other Standard Cryptocurrencies
The ERC-20 standard tokens have been compared to standard cryptocurrencies in recent times.
Some may even use the keywords ERC-20 and Cryptocurrencies interchangeably.
ERC-20 standard tokens built on the Ethereum blockchain network can operate and function like cryptocurrencies, but their foundations are different and cannot be interchanged with standard cryptocurrencies. What is an ERC-20 token?
ERC-20 standard tokens are built atop the Ethereum blockchain network and contain a set of guidelines and technical standards with which they operate on the Ethereum blockchain.
There are many standards for token creation on the Ethereum blockchain network.
The ERC-20 standard is among the numerous technical standards for token creation on the Ethereum blockchain.
Some examples of other ERC standards include ERC-223, ERC-721, and ERC-777.
On the other hand, cryptocurrencies are digital assets encrypted using complex cryptographic methods to secure transactions.
Cryptocurrencies have distributed ledgers that are powered and run on their own unique and decentralized blockchains.
In summary, ERC-20 tokens differ from standard cryptocurrencies as they rely solely on the Ethereum blockchain network compared to standalone cryptocurrencies with their unique blockchain network.
Pros Of The ERC-20 Standard
The ERC-20 technical standards and guidelines for token creation are a popular and most utilized standard on the Ethereum blockchain network due to its standard features that include;
Simplicity And Convenience
Deploying and launching ERC-20-based tokens on the Ethereum blockchain network is pretty simple and straightforward.
Blueprint For Developers
Developers building Tokens based on the ERC-20 technical standard can access code and blueprints to create ERC-20 tokens on the Ethereum blockchain.
The ERC-20 blueprints eliminate the idea and rigorous activity of developers writing and building codes for token deployment from scratch or the beginning.
Developer Interaction And Customization
The ERC-20 technical standard code for token creation is flexible and can be customized by developers to suit the nature of the project.
Developers can enable customizable features of ERC-20 tokens, such as the freezing and unfreezing of a token on the Ethereum network.
Cons And Drawbacks Of The ERC-20 Standard
Over the years, tokens created using the ERC-20 standard have experienced some challenges in scalability and adoption due to certain drawbacks of the ERC-20 standard.
Some of these drawbacks and limitations of the ERC-20 standard include the following;
Low Efficiency And Scalability
The ERC-20 standard is based on the Ethereum blockchain network, where its standards are operational.
In recent times, the Ethereum blockchain network has experienced scalability issues owing to its high-energy Proof of Work (POW) consensus mechanism.
Ethereum Proof of Work (POW) consensus mechanism requires miners with supercomputers to carry out complex mathematical computations to validate and secure the Ethereum network.
This consensus mechanism is not sustainable and efficient as it requires high energy to keep the Ethereum blockchain network running and secure.
Ethereum developers and the community revised the Ethereum consensus mechanism and switched the Ethereum blockchain network to a more scalable Proof Of Stake (POS) consensus mechanism.
Although Ethereum has completed the merge to a Proof of Stake (POS) consensus mechanism, the full effects of a more scalable model to the Ethereum network will be gradual.
Irreversible Network Transactions
ERC-20 tokens sent to the wrong network address cannot be recovered or reversed. Users involved in a transaction and sending out tokens must ensure that the recipient address is ERC-20 compatible.
In a scenario where an address is not ERC-20 compatible, ERC-20 tokens sent to this address cannot be recovered and can be said to have disappeared into thin air.
This makes users wary of using ERC-20 tokens for transactions across the Ethereum network as they contemplate the risks of losing tokens and funds.
High Transaction Fees
Due to Ethereum's high energy Proof of Work (POW) consensus mechanism, validating transactions on the Ethereum blockchain became slow and had low throughput.
This scenario results in high transaction fees for transactions carried out on the Ethereum blockchain.
The creation of ERC-20 tokens took a hit as high transaction fees on the Ethereum blockchain network resulted in users exploring other networks with low transaction fees.
How To Buy And Store ERC-20 Tokens
ERC-20 tokens built and created on the Ethereum (ETH) blockchain are ERC-20 compliant and adhere to the set rules of ERC-20 token creation.
ERC-20 tokens are quite popular in the cryptocurrency markets and garner a lot of cryptocurrency investors looking to purchase and store a variety of ERC-20 tokens.
Are you looking to purchase and store ERC-20 tokens? Look no further as we dissect ERC-20 tokens.
ERC-20 tokens are powered by the Ethereum network, a top blockchain network in the decentralized ecosystem.
An ERC-20 token price is unique to its token value, just like its ticker symbol, total supply, which may vary from other ERC-20 tokens on the Ethereum blockchain.
Decentralized exchanges and trading platforms powered by Ethereum provide access and a platform for cryptocurrency investors to purchase ERC-20 digital tokens.
Cryptocurrency traders and investors can securely store purchased ERC-20 tokens on ERC-20 compatible wallets and hard wallets available in the crypto space.
Examples of ERC-20 compatible and secure wallets are MyEtherWallet, Metamask, and a few other wallets.
ERC-20 compatible wallets are solely based on the Ethereum blockchain and secured by the Ethereum consensus mechanism, which recently switched to a Proof of Stake (POS) model.
To securely purchase and store ERC-20 tokens, you may create and set up an ERC-20-compatible wallet such as metamask.
Once the setup is successful with seed phrases securely kept, you may need to purchase and send Ether from a cryptocurrency exchange such as the Margex crypto exchange to metamask.
The next step requires connecting your Metamask wallet to a decentralized exchange that supports ERC-20 tokens.
You can now trade and swap Ether, your base currency, for various ERC-20 tokens available on the decentralized exchange (DEX).
You can buy and store ERC-20 tokens on Margex and stake them while they make money for you with up to 13% APY with no lockup periods, and staking rewards are sent to your staking balances daily with the help of the Margex automated system. Margex unique staking features for these ERC-20 tokens make them stand out among many exchanges in the crypto industry.
Which Cryptocurrencies Are Based On The ERC-20 Standard?
Information that may seem unpopular is the variety and number of digital tokens and cryptocurrencies developed and based on the ERC-20 standard.
It will surprise you that quite a variety of cryptocurrencies making the rounds and headlines in the crypto and blockchain industry are ERC-20 standard compliant.
The Ethereum blockchain network is massive and constantly developing, allowing more projects and digital tokens to be created atop its network.
The ERC-20 standard is a popular token creation standard and identifier number compared to other ERC standards.
The ERC-20 technical standard and guidelines in token creation make it possible for tokens to be 100 percent fungible and transferable between a network of users on the blockchain network.
Some popular tokens and cryptocurrencies based on the ERC-20 standard include the following;
- Tether (USDT)
- Shiba Inu (SHIB)
- Maker (MKR)
- Chainlink (LINK)
- Polygon (MATIC)
- Uniswap (UNI)
- ApeCoin (APE)
Frequently Asked Questions On ERC-20 Tokens
Here are some of the frequently asked questions as regards trading ERC-20 tokens.
ERC-20 Wallet - What Is It?
An ERC-20 wallet is a cryptocurrency wallet with high compatibility to manage and store ERC-20 tokens and cryptocurrencies.
ERC-20 compatible wallets are powered by the Ethereum blockchain network, which makes it easier and seamless to integrate and manage ERC-20 tokens.
Examples of ERC-20 wallets include MyEtherwallet, Metamask, and Ledger Nano S.
Cryptocurrency exchanges and trading platforms such as the Margex cryptocurrency exchange offers wallet and trading services for ERC-20 tokens.
What Does ERC Stand For?
ERC in ERC-20 is an acronym that stands for Ethereum Request for Comment.
Ethereum Request For Comment (ERC) is designed to be a digital document used by programmers to write smart contracts on the Ethereum blockchain network.
What Is The Future Of ERC-20 Tokens?
ERC-20 tokens are like every other token or cryptocurrency, leveraging blockchain technology in their operations and decentralized state.
The Ethereum community constantly evolves in innovative ways to scale its blockchain technology and decentralized applications built on its network.
In recent times, Ethereum completed its merging to a Proof of Stake (POS) consensus mechanism, which offers high scalability of its network.
Ethereum development and innovations may likely drive the growth of various ERC-20 tokens built and created on its platform in the long run.