What is ERC20?

In the expansive realm of blockchain technology, Ethereum (ETH 1.41%) stands as the world’s foremost programmable blockchain, and at its core lies the ERC-20 token standard. Ethereum’s programmability allows users to create their own tokens, representing a broad spectrum of assets within the Ethereum ecosystem, ranging from online platform points to company shares and various currencies, including the U.S. dollar.

The Essence of ERC-20: Defining Token Standards

ERC-20 plays a pivotal role on the Ethereum network by providing essential technical guidelines for developers engaged in token creation. This standard is crucial because Ethereum, with its capability to execute smart contracts, offers versatility in applications. Smart contracts, programs that run on a blockchain, can be bundled to create decentralized apps (dApps) and launch crypto tokens operating on the Ethereum blockchain.

The uniqueness of ERC-20 lies in its role as a set of rules ensuring seamless compatibility among diverse tokens within the Ethereum blockchain. When creating a new cryptocurrency on Ethereum, developers adhere to the ERC-20 guidelines to guarantee compatibility with the array of services, including dApps, blockchain games, and crypto wallets, designed for Ethereum tokens.

The Genesis of ERC-20

Proposed by Ethereum developer Fabian Vogelsteller on November 19, 2015, ERC-20 originated as an “Ethereum request for comments” (ERC), the mechanism for proposing improvements to the blockchain. Officially recognized in late 2017 as Ethereum Improvement Protocol 20 (EIP-20), it was authored by Vogelsteller and Ethereum co-founder Vitalik Buterin.

Deconstructing ERC-20: A Technical Overview

ERC-20 introduces a list of coding functions, and tokens adhering to these functions are termed ERC-20 tokens. These functions are categorized into three types: getters, functions, and events.

Getters:

• Total supply: Reveals the total tokens in circulation.
• Balance of: Displays the token quantity owned by a specific address/account.
• Allowance: Permits an account to spend tokens on behalf of a different owner based on a predefined allowance.

Functions:

• Transfer: Executes the movement of tokens from a sender’s address to a recipient’s address.
• Approve: Establishes the allowable amount of spending for a designated spender.
• Transfer from: Transfers tokens from a sender to a recipient using the allowance mechanism.

Events:

• Transfer: Triggered when tokens are sent from a sender to a recipient address.
• Approval: Activated when token approval is granted by the owner for use by the spender.
• ERC-20 vs. ERC-721 vs. ERC-1155

Ethereum encompasses multiple token standards, including ERC-20, ERC-721, and ERC-1155. Each standard serves distinct purposes:

ERC-20: Fungible tokens, identical in type and value, akin to traditional cryptocurrencies.

ERC-721: Non-fungible tokens (NFTs) for unique, identifiable items such as digital collectibles.

ERC-1155: A multi-token standard managing various token types, capable of functions from both ERC-20 and ERC-721 tokens.

Prominent ERC-20 Tokens

The vast landscape of ERC-20 tokens boasts over 500,000, according to Etherscan, ranging from major cryptocurrencies to smaller projects and, candidly, a spectrum of potential scams. The ease of token launch on Ethereum results in varying project qualities, emphasizing the importance of due diligence.

Understanding ERC-20 and its counterparts provides a comprehensive view of Ethereum’s tokenization capabilities, contributing to the ongoing evolution of decentralized digital assets.