What Crypto Users Need to Know: The ERC20 Standard

Feb 23, 2024 By Susan Kelly

Inexperienced investors may find the world of cryptocurrencies overwhelming, especially if they don't have a solid understanding of blockchain and smart contracts. Many modern electronic currencies have attracted investors from all walks of life, even people who might have previously been hesitant to engage in digital tokens or cryptocurrencies.

Investing in cryptocurrencies does not necessitate a deep study of the underlying technology, but gaining an essential awareness of some of the most critical aspects of many of the current virtual currencies will help investors make the healthiest and soundest financial choices possible. The ERC20 token standard, which governs a considerable section of the sector, is particularly crucial to contracts and bright property.

The Ethereum blockchain employs the programming standard called "ERC20". For an Ethereum token or smart contract to work, it must adhere to a set of rules and procedures outlined in this technical standard. To put it another way, ERC20 is a set of rules and functionalities that any new token on the Ethereum blockchain must adhere to function.

Prevalence and Importance of ERC20

Ethereum Request for Comment (ERC20) is a term that refers to the "Ethereum request for comment," which is analogous to the Internet Engineering Task Force's (IETF) "request for comment" as a means of delivering critical technical comments and needs to a group of developers and consumers.

There has been a long history of new tokens being created using the ERC20 standard in the cryptocurrency industry. ICOs and crowd funders have taken a particular liking to it. According to the ERC20 standard, there are now tens of thousands of different tokens in existence.

It's not uncommon for ERC20 intelligent contracts to be used for other purposes than creating non-fungible tokens for initial coin offerings (ICOs) (ICO). Initial coin offerings (ICOs) are essentially the cryptocurrency industry's version of an IPO in the stock market. To generate money for developing a new cryptocurrency, decentralized program, or service from investors and early users, a crypto firm conducts an ICO.

According to Yahoo! News, ERC20 tokens dominated the ICO bull market in 2017, and many successful cryptocurrencies were built using the ERC20 framework. An excellent example of this is EOS, which is still a popular ERC20 coin and has raised over $185 million in its five-day ICO.

Another is Bancor (BNT), which raised $153 million from the sale of its ERC20 token. More than a dozen more ICOs, all of which used ERC20 tokens, have raised hundreds of millions of dollars.

History of ERC20

ERC20's History In 2015, Ethereum programmers, as the representative of the Ethereum community as a whole, designed ERC20, formally recognized in September of 2017.

There must be an Ethereum Improvement Proposal (EIP), which explains the new functionality and associated protocols and standards, to create this type of standard for Ethereum. Once the EIP is approved, amended, and finalized by the committee, it is referred to as an ERC.

Ethereum's agreements and other features are then obligated to adhere to one of the standards that have been approved. Although ERC20 is the most well-known and often used ERC standard, it is not the only one.

Issues and Alternatives

As many additional tokens have complied with its specifications, some developers believe ERC20 is either restrictive or faulty in one or more ways. For this reason, multiple available token standards have been proposed since the introduction of ERC20.

Additionally, there's a problem with ERC20's approval and transfer mechanisms, which is addressed by the ERC223.

ERC621 is a variant of ERC20 that offers the same fundamental capabilities as ERC20, but it enables the ability to increase or lower the overall token supply. A holder of ERC827 tokens can authorize the expenditure of tickets by a third party. They all use ERC20 to some extent as the basis for their new protocols.

ERC20 Tokens: How to Store Them

ERC20 tokens must be stored in an ERC20 wallet like any other cryptocurrency. The most crucial step is to ensure that the crypto wallet supports coins of this type. Fortunately, there are several wallets specifically built to store Ethereum and ERC20 tokens, such as:

  • MetaMask
  • Trust Wallet
  • MyEtherWallet
  • Mist Wallet

Other blockchain-based systems, such as DeFi apps and NFT marketplaces, can potentially benefit from wallets like this.

Always make a copy of your private credentials and seed phrase before keeping crypto in any wallet. Don't let anyone else get their hands on the key or the word because doing so would give them complete control of the wallet's crypto.

In What Way Does ERC20 Function?

In other words, ERC20 is not a piece of software or a program. As far as I know, this is the usual procedure. Through this protocol, new tokens are tokenized and ensured to match the necessary technical standards. A token that does not meet the ERC20 requirements will not be published on Ethereum and will not be referred to as an ERC20 token.

The Hypertext Transfer Protocol (HTTP) is a good analogy. Protocols such as HTTP dictate how messages on the internet should be formatted and transported and how servers and browsers should respond to commands.

Similarly, ERC20 outlines the basic features and functions of Ethereum-based tokens. It is illegal to issue, trade, or list tokens that do not meet the requirements.

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