What Are ERC-20 Tokens on the Ethereum Network?

Likely, a significant number of individuals are already familiar with the Ethereum blockchain networks. The answer is yes; these are the leading cryptocurrencies that are currently dominating the global blockchain sector.

These two cryptocurrencies have seen their values soar to the top of the market and they are now exceedingly tough to acquire. Despite this, this ultimately resulted in the creation of fungible tokens. Today, we will be concentrating on fungible tokens, and more specifically on ERC-20-specified fungible known as “ERC-20.”

what-are-erc-20-tokens-on-the-ethereum-network

ERC-20: What Does It Mean?

Tokens built on the Ethereum network must adhere to the ERC-20-specific protocol, which establishes their interchangeability. In contrast to the more well-known non-fungible tokens (NFTs), which cannot be exchanged for each other, a fungible token can be converted into another token of the same type. ERC-20 provides a standard means of exchanging tokens that can interact with smart contracts. Tokens in this context are symbols for tradable resources like assets, rights, ownerships, access, digital currencies, and so on. Tokens embodying one of these variables can be traded for tokens reflecting another using smart contracts, as per the standard. To put it simply, smart contracts are agreements between entities that are codified to carry out predetermined conditions.

The thing to know about the ERC-20:

  • The Ethereum Request for Feedback 20 (ERC-20) protocol is the one that has been executed for fungible tokens that are created by using the Ethereum smart contracts.
  • ERC-20 is a standard that governs the creation of fresh tokens on the Ethereum platform. This standard ensures that newly generated tokens can be interchanged with tokens already in use inside smart contracts.
  • Many of the new tokens that have been produced utilizing the Ethereum network adhere to the standard specification known as ERC-20.

History Of ERC-20

The developer Fabin Vogelstellar came up with the ERC-20 standard in 2015. This was to standardize the tokens that are used within smart contracts that run on the Ethereum network. Vogelstellar put out the suggestion by way of the development’s Github page in the capacity of an Eth Request for Feedback (ERC). Since it was the 20th response, the designation ERC-20 was bestowed upon it. The protocol that is followed by the network of Ethereum developers, the proposal was accepted and put into action in 2017 under the name Ethereum Development Request 20. (EIP-20). Despite this, it is still referred to as ERC-20 because that’s what was referred to before being authorized.

You will also love to see  What Is NFT Blockchain? | Everything You Need To Know

However, Since the proposal was accepted and put into action, developers using the Ethereum blockchain to construct smart contracts now have to ensure that their tokens adhere to this standard if they want their tokens to be compatible with each other.

Rules Guiding The ERC-20

What’s in the ERC-20 Specification Every token that complies with the ERC-20 standard is expected to follow a set of rules and use a set of protocols.

  • Total supply function: When you want to know how many tokens have been created in total, you may look them up with the Total supply function
  • The balance method returns the current balance of the specified account.
  • Token Transfer – Sends the User-Specified Amount of Tokens to the User-Specified Wallet Address.
  • Using TransferFrom, you can send tokens from a given address to another.
  • Accept: permit a user to withdraw tokens from an allotted account for a specific transaction.
  • A predetermined number of tokens are returned to the owner after being spent.

The transfer event (which occurs anytime tokens are exchanged) and the authorization event (which is triggered if approval is needed) are two extra events triggered by these operations.

However, Tokens built on the ERC20 standard can now be bought and sold on cryptocurrency exchanges like Coinbase, as well as directly between peers.

Objectives Of ERC-20

Inside the blockchain, the ERC-20 standard plays a crucial role by defining a set of guidelines. This is what all tokens built on Ethereum that make use of smart contracts must follow. These guidelines govern things like token supply and how operations are validated. This users have access to which data, and how tokens themselves can be moved between holders.

You will also love to see  HODL: The Cryptocurrency Strategy of "Hold on for Dear Life" Explained

To maintain its promise of scaling, Ethereum needs to ensure that any tokens built on its platform are compatible with one another.

Therefore, this token standard gives programmers of all stripes the ability to foresee the behavior of new tokens inside the context of Ethereum. Thus, developers can rest easy knowing that they won’t have to scrap their current projects each time a new coin is introduced. Furthermore, provided the token is used appropriately, there will be no compatibility issues between new and existing projects.

Thankfully, the majority of token creators have complied with ERC-20 guidelines, therefore the vast majority of tokens distributed via Ethereum’s ICOs are ERC-20 compliant.

Examples Of ERC-20 Compliant cryptocurrencies?

As ERC-20 token standard has been completed, and since then, more than 500 thousand tokens that adhere to the specification have been generated. The most well-known ERC-20 tokens include:

  • Tether USD (USDT)
  • USD Coin (USDC)
  • Inu Shiba (SHIB)
  • Binance BUSD, BNB, and DAI Stablecoin
  • HEX (HEX)
  • LEO Bitfinex (LEO)
  • MAKER (MKR)

ERC-20 versus BEP-2

The Ethereum network uses tokens that adhere to the ERC-20 standard. From Ethereum, several new coins, blockchains, and networks have emerged. The cryptocurrency exchange Binance is responsible for one such community and blockchain. The Binance team forked Ethereum to develop its blockchain, called the Binance Chain. For tokens produced utilizing their blockchain, the programmers of Binance established their protocol. This specification, known as BEP-2, is comparable to ERC-20 because it directs the generation of tokens for usage on the Binance Network. The Binance Smart Network is a secondary chain that Binance has developed to work alongside the Binance Chain. Despite using a more recent model called BEP-20, which enables cross-chain interoperability. This chain is still interoperable with ERC-20 coins, the Ethereum Digital Processor, and the Binance Chain.

What Distinguishes the ETH and ERC-20 Standards?

The native coin utilized by the Ethereum network and ecosystem as a means of exchange for confirming operations is called ether (ETH). The Ethereum network requires fungible tokens that adhere to the ERC-20 standard to be used with smart contracts.

You will also love to see  How To Buy An NFT

Are there any drawbacks to using ERC-20 tokens?

#1. Irregularly slow performance

Due to the popularity of apps like CryptoKitties, the Ethereum network has slowed down in the past (which has since moved to its Flow blockchain). This causes the network to become less efficient and raises the cost of all transactions.

#2. Inefficient business dealings

Transaction processing times may exceed one minute due to the 14-second block duration. For some purposes, this may be adequate, but for others, it may be too slow.

#3. Transaction Cost

It is necessary to use a second cryptocurrency, like ETH, to cover the cost of transaction fees incurred when exchanging ERC-20 tokens. As the accumulation of dust on various platforms can increase both time and money, this is an unnecessary step that can be avoided.

Frequently Asked Questions

Where do ERC-20 tokens fit into the picture?

Tokens issued on the Ethereum blockchain must adhere to the ERC20 specification. Tokenized assets or “smart property” can then be created using smart contracts and offered to investors. The Ethereum Request for Comments (ERC) standard was launched in 2015 with the ERC20 token.

What is the total supply of ERC-20 tokens?

ERC-20 is a widely used token standard in the blockchain industry due to its ease of use. The great majority of tokens released on the Ethereum blockchain are ERC-20 compatible, and there are presently over 160.000 of them on the Ethereum main net.

Conclusion

The Ethereum blockchain is not the same as the Erc-20 token, but it supports the Erc-20 network in Blockchain fees. The information composed today was essential in creating an understanding of additional powered blockchain networks under the Ethereum network.

Editor’s Recommendations

Reference

About Daniel Ogbuciekwe

Check Also

What is Fractal NFT? Don’t be late on New Crypto Trends!

The development of Fractal NFT networks is sparked by the direction of NFT games. However, …

Leave a Reply

Your email address will not be published. Required fields are marked *