The world of cryptocurrencies can seem overwhelming to newcomers, especially those with little technical knowledge of DLT, blockchain, or smart contracts. However, the lucrative investment prospects of many new cryptocurrencies have attracted a wide range of traders, including those who by nature would be cautious about investing in a digital token or cryptocurrency.
What is an ERC-20 token?
if you had any contact with the cryptocurrency sector, you've probably heard of ERC-20 tokens, but what exactly are they?
The Ethereum Request for Comment – popularly known as ERC-20 – refers to the scripting standard that is used in the Ethereum blockchain. This technical standard determines a certain group of rules and actions that each Ethereum token or smart contract must follow. This standard also defines the steps to implement this type of tokens. Sometimes it is easiest to define the ERC-20 standard as a kind of category of basic guidelines and features that apply to each new token created on the Ethereum blockchain.
ERC-20 tokens typically represent a wide range of digital assets. Like other cryptocurrency resources, they most often have a specific value and can be sent and received. The main difference between ERC-20 tokens and other digital currencies such as Bitcoin and Litecoin is that ERC-20 tokens do not have their own blockchain. The mechanism behind these assets is that they sit on top of the Ethereum network.
History of ERC-20 tokens
The ERC-20 standard was created by Ethereum developers on behalf of the wider crypto community in 2015 and was officially recognized in September 2017. Since then, it has become one of the main driving forces behind the popularity of this leading cryptocurrency. In the Ethereum ecosystem, ERC-20 tokens represent a very large group of digital assets. These include solutions such as vouchers, IOUs, and sometimes even real tangible objects. Essentially, Ethereum tokens are governed by smart contracts that run on the Ethereum blockchain.
From the perspective of today, over 200,000 tokens in the ERC-20 standard coexist in the Ethereum blockchain. Given the fact that they live on this blockchain, they benefit from its technology and continuous development. ERC-20 tokens are stored in Ethereum addresses and can be sent using Ethereum transactions.
The importance of ERC-20
ERC-20 tokens have been the dominant method of generating new tokens in the digital currency space for a long time. This standard is especially popular among ICO projects, as well as companies that operate in the field of crowdfunding. To date, tens of thousands of different tokens that operate on the basis of the ERC-20 standard have already been minted.
At this point, it should be pointed out that many ERC-20 smart contracts are constantly used to perform a wide range of procedures and functions in the digital space. For example, many of them have been used to create non-fungible tokens (NFTs), as well as to carry out initial coin offerings (ICOs). ICO is a kind of response of the cryptocurrency sector to the initial public offering (IPO) on the stock exchange. A cryptocurrency project that attempts to raise funds to create a new digital currency, decentralized app or other financial service is launching ICOs as a quick and effective way to raise funds from investors and early adopters.
How are tokens created?
Smart contracts are often used by entrepreneurs and developers to create digital technologies, which include a smart property or tokenized assets in which the cryptocurrency community can invest their funds. In order to effectively lead to the creation of a token on the Ethereum blockchain, it is best to prepare a smart contract.
A contract is a piece of programming code that is stored on the Ethereum network. The contract will be executed when requested by the authorized person/s or by another contract.
*The smart contract is responsible not only for generating new ERC-20 tokens, but also for handling all transactions and tracking the balance of each individual token holder.
How to get ERC-20 tokens?
To receive the ERC-20 token, you must send it to your Ethereum address. Given that ERC-20 tokens only function on the Ethereum blockchain, you can safely use any Ethereum address provided by any reputable cryptocurrency wallet. In summary, ERC20 tokens are always stored in your Ethereum account.
How to send ERC-20 tokens
Each time you attempt to send an ERC-20 token, you are essentially telling the token smart contract that a transfer operation is required. To perform the transfer function you desire, a contract on the Ethereum blockchain will require a fee in the form of ETH, which is called "gas". It follows that any cryptocurrency operation involving sending ERC-20 tokens to a different address will also consume some ETH from your balance. This means that you are unable to send ERC-20 tokens if your ETH balance is too low or simply empty.
Can ERC-20 tokens be stored in a wallet?
All Ethereum tokens that were created in the ERC-20 standard can be stored in hardware wallets of all popular cryptocurrency wallets. Since ERC-20 tokens run on the Ethereum blockchain, there is no specific use for these tokens except when they are used in interactions with individual cryptocurrency projects. Currently, users of the cryptocurrency sector can trade ERC-20 tokens peer-to-peer with each other or on cryptocurrency exchanges.