What is an ERC-20 token?

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3 years ago
Topics: Review, NFT, Ethereum, ETH, ARC20, ...
  • The ERC-20 standard is the technical standard used for all smart contracts on the Ethereum blockchain for fungible token implementations.

  • A token issued under this standard is an ERC token.

When Bitcoin first hit the market some doubted the potential of the digital asset mainly because it was initially worthless. A clear example of this is remembered every May 22 during the "Bitcoin Pizza Day" when a user exchanges two pizzas for 10,000 bitcoins.

When user Laszlo posted his offer on the Bitcointalk forum in 2010, some people laughed because they did not see this offer as a favorable deal. Not even receiving a response, Laszlo asked if the other users thought his offer was low. He finally managed to make the exchange and enjoy his pizzas.

It has been 10 years since that event and in this period of time the world of cryptocurrencies has changed a lot. Those 10 thousand Bitcoins that at the time were worth $41 dollars are now worth more than $100 million dollars, and the asset, which at the time was almost a collector's item for some technology lovers is now, in addition to a method of payment accepted in various parts of the world, a very attractive investment asset that has led it to be considered the "digital gold".

Following the success of Bitcoin, some companies saw in digital assets an opportunity to diversify the existing financial scheme and sought the opportunity to develop their own cryptocurrency such as Ether, Dash or Litecoin. According to the CoinMarketCap site, there are more than 3 thousand registered cryptocurrencies and more and more are coming to the market, although Bitcoin continues to lead the space.

Blockchain the Ethereum

Bitcoin undoubtedly revolutionized the financial market by allowing the economy to function in a decentralized manner, however it is not a totally perfect product and some of the cryptocurrencies that were born inspired by it sought to improve some of these deficiencies.

With this idea in mind Vitalik Buterin created Ethereum, a "global open source platform for decentralized applications". The Ethereum blockchain not only enabled the creation of ether, the blockchain's native cryptocurrency, but also allowed the creation of other products such as DApps or decentralized applications and the birth of tokens.

What is a token?

It is common to use the concept of token as a synonym for digital currencies, however, this is erroneous. The differences between these two concepts lie in the fact that cryptocurrencies fulfill a financial function and tokens can be adapted to different user needs.

There are five types of tokens: Platform, Security, Transaction, Utility and Governance tokens. Each one, due to its particularities and characteristics, fulfills different functions, let's analyze each one.

Platform tokens are used for the creation of decentralized applications and have the most varied use cases. We can find them in entertainment platforms, in advertising or in the marketplace. These tokens benefit from the blockchain on which they are built to obtain greater security and ability to support the transactions made.

Security tokens or security tokens (STO) are financial assets that represent within the blockchain some real asset such as a trust, shares, or even property or even animals, as is the case of the BitCow token. This token represents a guarantee for the user that will allow him at some point to claim the payment of a debt, delivery corresponding to the participation in the profits, a right in property, among other similar legal rights.

Transaction tokens, as their name suggests, help verify transactions on the blockchain and are exchanged for goods and services. Some cryptocurrencies can function as transaction tokens as is the case with Ether and Bitcoin, however not all tokens are cryptocurrencies.

Utility tokens are tokens that serve to use an existing platform or protocol. Their use often reduces the costs involved in using the platform. An example of such tokens is Binance's $BNB used to pay exchange fees, to participate in token sales on its launch platform and also powers its decentralized exchange service, Binance DEX.

We could define governance tokens as titles that users have to have a say and participate in decisions within a protocol. These tokens are used in the voting systems of the blockchain and guarantee transparency in the participation of the governance of the protocol.

ERC-20 tokens

Every time we see the issuance of a new token we can realize that most of these tokens are based on EC20 token standards and protocols, this raises the question: what is an ERC-20 token?

Ethereum Request for Comments 20 or ERC-20 according to the Ethereum site, is "the technical standard used for all smart contracts on the Ethereum blockchain for fungible token implementations."

These parameters or list of requirements must be met in order to implement a token in the Ethereum blockchain. Each platform can define its standards but when we see that a token meets the ERC20 requirements it will be easy to know that the platform or project to which it is affiliated belongs to this blockchain.

The fact that a token meets these parameters not only guarantees that the asset complies with certain characteristics necessary to interact in a network, but also helps investors feel secure in the knowledge that the project is backed by a secure network.

ERC20 Standards

In 2015 Fabian Vogelsteller, published the standards for token creation in ethereum in order for developers to predict how new tokens will work within the Ethereum network.

"While Ethereum allows developers to create absolutely any type of application without restriction to specific types of functions, and prides itself on its 'featurelessness,' there is a need to standardize certain very common use cases to allow users and applications to more easily interact with each other" the paper notes.

Some of the specifications that a token must have are: number of units to be distributed, balance, balance inquiry for specified addresses, how transactions are approved, among others depending on the type of token.Three of these features are mandatory and six are optional. Upon meeting the specifications of each token, they can be created and offered to the public.

The mandatory requirements for the creation of an ERC20 token are:

  • Token name

  • Symbol that will identify you

  • Number of decimal places. This is the number of times a token can be divided up to 18 decimal places.

The optional requirements for the creation of an ERC20 token are:

  • totalSupply: number of tokens to be created.

  • transfer: number of tokens that will be allowed to be sent by each user from the total supply.

  • balanceOf: returns the number of tokens that a given address has in its account.

  • transferFrom: allows users to transfer tokens to another user.

  • approve: helps identify tokens against the total supply of tokens to prevent counterfeiting, and in turn verifies a transaction.

  • allowance: Allows to verify the number of tokens owned by a user.

The standards for the creation of the various tokens can be consulted directly on the Ethereum site.

Is the ERC20 token perfectible?

Thanks to the interoperability enabled by these assets, ERC20 tokens are responsible for almost 50% of the total value of the network, according to a study by the firm Messari. which represents the value that these assets hold in the market.

However, despite their great growth and many qualities, ERC20 tokens are not perfect and have some flaws in their development. Looking for a solution to these flaws, Etherem programmers have developed the following standards: ERC223, ERC721 and ERC 777.

ERC223

The ERC223 standard seeks to solve the losses caused by transfers of ERC20 tokens to a contract that is not intended to work with ERC20 tokens. As the destination does not correspond to the token programming, the transaction cannot be recognized, but neither can it be rejected, causing the assets to be stuck in the network and impossible to recover.

The ERC223 standard will solve:

  • Lack of possibility to manipulate transfers.

  • Loss of tokens.

  • Token transactions must match Ethereum's uniformity ideology.

Tokens designed under the ERC223 standard will allow contracts to handle incoming token transactions and prevent accidentally sent tokens from being accepted by contracts and getting stuck.

ERC721

ERC271 standards were designed to be able to create unique tokens with unrepeatable properties. This feature makes the tokens obtain a great value in the market by giving them "particularity, singularity or uniqueness" unlike tokens as opposed to ERC20 tokens which are divisible, fungible and interchangeable. The most famous example of this type of tokens are CryptoKitties.


ERC773

The ERC773 standard, like ERC223, seeks to resolve the loss of tokens during transactions. This standard allows the central registry of smart contracts to be examined.

ERC-820. This standard establishes a central registry of smart contracts on the network in Ethereum. and check the functions it supports.

ERC773 tokens uses the "send" function that is used to transfer the ether itself instead of the "transfer" and "approval" functions that are used in the ERC20 standard. In addition this programming allows the addition of the figure of "authorized operators" which allows a smart contract to move tokens under a user's name.

The tokens developed under this standard are highly customizable and allows adding additional functions that can improve privacy or the recovery of the token in case it is lost.

The emergence of Ethereum in the crypto ecosystem allowed new players to participate in the market. Thanks to the tokens based on its blockchain, several companies and users can develop projects taking advantage of the benefits that blockchain technology and cryptocurrencies offer, thus increasing not only the number of users but also the flow of capital within this system, which allows it to grow stronger.

well I hope you liked the information presented here for the next I will be more tokens and cryptocurrencies with their respective information have a great day here pandoru1997 goodbye.....

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Avatar for pandoru1997
3 years ago
Topics: Review, NFT, Ethereum, ETH, ARC20, ...

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