What are ERC-20 tokens?

ERC-20 stands for Ethereum Request for Comment 20, a set of technical rules for smart contracts on Ethereum. Fabian Vogelsteller proposed ERC-20 in 2015 as a set of rules for developers to follow to build their crypto tokens on Ethereum. It provides a common set of functions used by different smart contracts, making it easy for developers to create and deploy their crypto tokens on Ethereum. The common functionality makes ERC-20 tokens compatible with one another and can be traded on decentralized exchanges (DEXs) such as Sushiswap and Uniswap.

ERC-20 tokens can be a variety of crypto assets, such as utility tokens and stablecoins. They are fungible; each token is interchangeable with another of the same type and value. They have the same properties like symbols, names, and decimals. They also have the same functions such as checking the balance of a crypto address and transferring crypto tokens between addresses. These are some of the prominent features of an ERC token.

• Fungible: Each token has the same code, but transaction histories can be used to identify each crypto token.
• Transferable: ERC-standard crypto tokens can be sent from one address to another.
• Fixed supply: Developers can only create a set number of crypto tokens. They cannot issue more tokens and raise their supply.

How does ERC-20 work?

ERC-20 tokens are designed for paying for functions and have become the most commonly used crypto tokens on Ethereum. These utility tokens are used to pay for various services. These tokens have several functions that they have to implement.

• TotalSupply: This function produces data on the total token supply.
• BalanceOf: It provides the account balance of an owner’s account.
• Transfer: This function executes transfers of crypto tokens to a specified address.
• TransferFrom: It executes transfers of crypto tokens from a wallet address.
• Approve: This enables users or spenders to withdraw crypto tokens from a specific account.
• Allowance: This function returns crypto tokens from a spender to the owner’s account.

These ERC-20 functions also initiate two significant events. First is the transfer event, which occurs whenever crypto tokens are transferred. Second, is the validation event, which occurs whenever approvals are required.

List of ERC-20 coins

More than 500,000 crypto tokens are issued compatible with the ERC-20 standard. Some popular ERC-20 crypto tokens include:

• Uniswap (UNI) is a decentralized exchange (DEX) that allows users to swap crypto tokens in a peer-to-peer manner.
• ApeCoin (APE): APE is the utility token for the popular Bored Ape Yacht Club ecosystem.
• Decentraland (MANA): MANA is used to acquire LAND crypto tokens that represent plots of virtual land. It is the utility token for the popular metaverse platform, Decentraland.

ERC-20 Advantages

• Interoperability is one of the vital benefits of ERC-20 tokens, as they all follow the same set of rules and can be exchanged easily with one another. This feature also enables a wide range of use cases.
• ERC-20 tokens are built on Ethereum, so they inherit its security features. They also inherit features such as transparency, decentralization, and immutability, making it extremely difficult for scammers to manipulate or tamper with the tokens.
• These ERC-20 tokens are also highly customizable, and developers can create their own crypto tokens for their specific needs.
• They are also highly transparent, as all crypto transactions are recorded on the Ethereum blockchain. You can track the movements of crypto tokens from one address to another. This feature makes it easy to verify the authenticity of a crypto transaction. It provides a high degree of transparency for its investors.

ERC-20 Disadvantages

• Lack of flexibility is one of the disadvantages of ERC-20 standard tokens. The standardized set of rules that provides stability also limits functionality. Businesses that require more customization in their token design might find this a significant disadvantage.
• While they inherit all the security features of Ethereum, they also inherit vulnerabilities. This includes network congestion and hacking or tampering with smart contracts. There are security protocols to counter these threats, but they do not eliminate all security breaches.
• Gas fees can prove to be a significant expense for users. The cost of gas depends on network congestion, which makes it difficult for users to predict the cost of their transactions. Smaller investors might not have the resources to pay gas fees, limiting their participation in the token ecosystem.

What makes an ERC-20 token valuable?

The ERC-20 standard makes it easy for developers to build and deploy new crypto tokens that are interoperable. It has also become the most preferred standard for tokens in initial coin offerings (ICOs). Additionally, these tokens can be used for a wide range of dApps on Ethereum, such as DeFi services. They can also be easily exchanged on crypto exchanges, enabling easy trades. Liquidity also adds to the value of these tokens.

Conclusion

ERC-20 tokens are widely implemented and will continue to be popular as long as Ethereum flourishes. It is vital to understand the ERC-20 standard, as it is a set of rules followed by developers to create and deploy various decentralized applications (dApps). The biggest threat to the ERC-20 standard would be the introduction of new Ethereum standards.

You can buy ERC-20 tokens like Ether (ETH) on ZebPay and join the millions of users already trading with us.

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