The Ethereum blockchain token standard “ERC-20” is a standard for creating crypto assets compatible with the Ethereum blockchain.
The ERC-20 standard extends to almost every area of the crypto asset ecosystem. Many popular crypto assets such as stable coin “Tether (USDT)” and Oracle service chainlink (Chainlink) are “ERC-20 tokens” made according to the ERC-20 standard.
What is an ERC-20 token?
Anyone can create ERC-20 tokens, but most are made by organizations and tech companies. Each token has unique features such as giving users the right to vote to determine the future of the project and rewarding specific tasks.
ERC-20 tokens are typically sold in a variety of ways as a means of financing the early stages of a project. In the past, it has been criticized for being too enthusiastic and a means of dubious investment and fraud. Many of the projects that raised money during the 2017 Initial Coin Offering (ICO) boom reportedly failed to benefit investors.
The ERC-20 standard standardizes the core functions of each token, and all tokens created according to this standard are compatible with each other, such as MyEtherWallet and MetaMask. Compatible with ERC-20 compatible services.
To understand its convenience, let’s list some of the problems token makers face when building a project from scratch.
- Creating smart contracts: Smart contracts play an extremely important role in determining the total supply of tokens, the distribution method of tokens, the issuance schedule, and so on. It also has major functions such as checking the balance of the holder and facilitating the movement of tokens.
Writing these smart contracts is a complex and time-consuming process that usually requires a dedicated team of developers. It is very costly and can have catastrophic consequences if smart contracts are not programmed correctly.
- Compatibility with wallets and exchanges: Creating crypto assets without using the ERC-20 standard requires additional work to ensure compatibility with wallets and exchanges.
What are the features of ERC-20?
- Ethereum blockchain: ERC-20 tokens are built on the Ethereum blockchain.
- Smart contract: Token functionality is managed by smart contracts and does not require a trusted third party (person or organization) to operate the token. If the rules and conditions match, the program will run automatically.
For example, when you send a token to someone, you don’t have to trust someone.
ERC-20 has several features that developers must implement. The main ones are as follows.
- totalSupply: Ability to determine the total supply of tokens
- balanceOf: Ability to display the number of tokens held by a specific address
- transfer: Ability to transfer ownership to another user
What can I do with ERC-20 tokens?
- Crowdfunding: Ethereum app developers sometimes fund projects through crowdfunding. Investors can receive newly created tokens at a discounted price before the official launch.
- Voting right: Tokens can be used to vote on project decisions. In that case, many token holders have greater influence.
- Represents a physical object: Tokens can represent ownership of assets such as gold.
- Transaction fees: Transactions on the Ethereum blockchain include fee settlement options. If your network is busy, you can trade faster by paying more network fees, called gas bills.
- new function: Ethereum may not meet the functionality required by the project. Therefore, the developer creates a new token (cryptographic asset) with the necessary functions.
What is the future of the ERC-20 standard?
The ERC-20 standard has many advantages, but it is not perfect. The “serious problem” of the ERC-20 standard has been abused, and at least $ 3 million worth of theft damage has been reported. Also, if the Ethereum blockchain is congested, the process will take a long time.
Developers need to avoid these problems with ERC-20 when programming. Research and development of “ERC223” and “ERC777”, which may replace ERC-20, has been carried out for a long time. However, ERC-20 remains the most popular standard.
How many ERC-20 tokens are there?
As of December 2020, 829 projects and more than 350,000 tokens are based on the ERC-20 standard, according to Etherscan, which provides Ethereum data.
Which crypto assets are ERC-20 tokens?
There are a surprising number of crypto assets created using the ERC-20 standard, including:
- Tether (USDT)
- Chain link (LINK)
- Binance Coin (BNB)
- USD coin (USDC)
- Wrapped Bitcoin (WBTC)
｜ Translation: Akiko Yamaguchi
｜ Editing: Takayuki Masuda, Shigeru Sato
｜ Image: Shutterstock
｜ Original: What Is the ERC-20 Ethereum Token Standard?