ERC-20 tokens are solely designed and used on the Ethereum blockchain platform. The tokens follow a predesigned list of standards allowing them to be shared and exchanged concerning other tokens. They can also be transferred to any crypto wallet. ERC-20 tokens were designed by the Ethereum community with six mandatory rules and three options. There is more on that later.
This short guide will explain what ERC-20 is designed for, the team behind it, the way it works, and the various uses and applications.
What Is ERC-20 Designed For?
Before ERC-20 was created every ICO token was focusing on reinventing the wheel where an execution was concerned. They had their list of functions, which led to multiple problems. The only way Ethereum could ensure a healthy ecosystem was by ensuring that Dapps built on the platform could interact seamlessly. But, this became impossible when different ICO tokens had different smart contract structures.
This gave rise to ERC-20 tokens, which became a guide of rules and regulations to create a token design blueprint for all Ethereum-based smart contracts. Ethereum Request for Comment is the long-form of ERC with the number 20 referring to the assigned request.
Who Is The Team Behind ERC-20?
ERC-20 tokens can be designed by anybody on the Ethereum platform. However, the ERC-20 standard was developed by the core Ethereum team and the larger community to address the problem of transferability and uniqueness between Dapps.
How Does ERC-20 Work?
There are three options rules and six mandatory rules in ERC-20 standard. The optional rules include Token Name, Symbol, and Decimal (up to 18), whereas, the mandatory rules state totalSupply, balanceOf, transfer, transferFrom, approve, and allowance.
ERC-20 tokens are created with the help of smart contracts. These are also used to record token balances and facilitate transactions. Smart Contracts on the Ethereum platform are written based on If-This-Then-That (IFTTT) logic using the programming language “Solidity”. ERC-20 acts as the universal language used by all tokens created on the Ethereum network. It majorly allows a token to be traded with another on the Ethereum network.
Since anyone can write a contract on Ethereum and create their token, ERC-20 was launched as a standardizing tool to allow altcoins to interact with each other. The ERC-20 standards are a simple list of events and functions, which states that each contract must be in a position to respect the overall standard.
One of the foremost aspects of ERC-20 tokens is that they can be customized to enable multiple features. For instance, they can be coded to allow users to peg the value of the token to another on the Ethereum platform. This will be established by setting up a fund, which automatically sells or buys tokens to maintain the minimum balance.
Other such interesting features include auto-refill, freezing tokens, PoW, and adding a central mint, which can change the value of several tokens in circulation.
What Are Current and Future Applications of ERC-20?
ERC-20 tokens have been immensely useful in the crypto world. It is hard to describe the sheer impact these tokens have had on blockchain technology and crypto-assets. ERC-20 tokens are single-handedly responsible for the present ICO industry, estimated to be worth billions. They have also played a major role in the mass adoption of cryptocurrencies and making the digital currency more mainstream.
There are numerous use cases of the ERC-20 token. Some of the more popular cryptocurrencies are USDT, LEO, LINK, HT, MKR, USDC, VEN, CRO, and BAT, which are all ERC-20 tokens. All tokens developed on the Ethereum platform are ERC-20 tokens. Tron (TRX) is an open-source protocol designed for the digital entertainment industry. This ERC-20 token aims to connect different content creators under a single umbrella by launching a content platform within the blockchain ecosystem.
ERC-20 tokens work similarly to Ether and Bitcoin. It is a blockchain-based asset, which has a dual function of holding value while transferring the said value among various people. However, a major difference between ERC-20 tokens and others is that it is created solely on the Ethereum blockchain.
However, ERC-20 tokens are not without their limitations. There are multiple situations that these tokens are unable to address. For instance, there have been situations in which ERC-20 tokens have been unintentionally destroyed instead of Ether. This has led to the loss of an estimated $3 million.
The Ethereum community is currently working on two new standards called ERC-223 and ERC-721 to fix these issues.