What Are ERC20 Tokens?

In order for novice crypto investors to understand what ERC20 is, we first need to explain what a token is in the cryptocurrency world. A token is a digital asset that is not a means of payment (unlike cryptocurrencies, which were originally created for this). It can be compared to a security. The functions of the token can be varied:

• Proof of ownership of an object.

• Confirmation of obligations to provide a loan or vice versa, to raise funds and further repayment.

• Obtaining additional privileges on blockchain platforms.

An important difference between a token and a cryptocurrency is that the token does not have its own blockchain. It is issued on a ready-made platform. This example shows how ETH differs from ERC20. The difference is that Ethereum is the cryptocurrency for which the blockchain was designed. For ERC20 tokens, the ready-made Ethereum blockchain is used. You can track any transactions with ERC20 tokens through the block explorer.

ERC20 stands for Ethereum Request for Comments 20. It is an Ethereum technical protocol that was designed to improve the network and create tokens easily. The number 20 means the unique number of the token standard. ERC20 has been around since 2015. In fact, these tokens are smart contracts on the Ethereum blockchain. The protocol itself is quite broad and provides a lot of flexibility for developers who create and launch tokens.

The need to develop ERC20 arose due to interoperability issues in the Ethereum network. The tokens had different standards and could not interact with each other. Special protocols were developed to eliminate this problem, and the Ethereum blockchain tokens were unified in accordance with these standards.

ERC20 solves the main problem in the Ethereum network – it eliminates the need to write new code every time. All tokens based on this protocol are created on the basis of a single code; they are interchangeable and fully compatible with each other. Thanks to this, another problem was solved – time. You can create an ERC20 type token in just 20-30 minutes.

The ERC20 protocol is a set of rules that must be followed for a token to be accepted and operate on the Ethereum blockchain. Based on this standard, you can create digital assets for a variety of purposes. The specification of tokens is extensive because there are hundreds of projects based on ERC20. The most famous platforms using tokens of this standard are as follows:

• Binance Coin.

• Augur.

• Melonport. 

• Numeraire. 

• Golem.

• Gnosis.

• OmiseGo.

• Decentraland.

• Matchpool, etc.

Also, the tokens of this protocol have an important feature. All of them can be stored in ERC20 wallets. That is, cryptocurrency wallets that support Ethereum can also accept tokens issued using this protocol. You can store such tokens on desktop, mobile, hardware, and web wallets.

Despite all the advantages, the ERC20 standard is unfortunately not perfect. There are some risks and problems associated with it. In particular, the smart contract cannot be changed. The entire set of conditions for the execution of the transaction, which were laid down during development, remains constant. If you want to change something, you will have to issue a new token and re-list the token on the exchange. If there is a bug in some smart contract, it is also impossible to fix it.

It is important to know that ERC20 tokens may not always be sufficient for the project's goals. Its technical level can be considered quite low, so the ERC20's feature set is relatively small. Therefore, such tokens may not be suitable for every project. However, despite these shortcomings, ERC20 is a technology that can meet the needs of many cryptocurrency platforms.

Tokens are a type of digital asset that can be compared to securities. Token holders receive certain privileges. These may be a share in a project or the ability to pay for goods or services on a specific platform. Tokens are important for many crypto projects, so one of the tasks of the community was to find solutions that would allow the issuance of virtual assets as quickly as possible.

The Ethereum team solved this problem most effectively by developing special standards for issuing tokens. One of them was the ERC20. This type of token is quite simple to develop and universal, thanks to which it has earned increased attention in the crypto community. In this article, we will explain what ERC20 is and how this token standard works.