What Is ERC-20 Tokens? All About Ethereum’s Most Important Token Standard

In 2014, Vitalik Buterin and its additional partners introduced Ethereum as an open-source platform for creating decentralized applications. Most of Buterin’s motivation for creating a new blockchain platform came from Bitcoin’s lack of flexibility. Since then, the Ethereum blockchain has attracted developers, enterprises, and entrepreneurs from all around the globe, resulting in an increase in users employing smart contracts and distributed applications. Ethereum blockchain supports over five token standards, each of which reflects the rules and conditions tokens must adhere to be declared as Ethereum compatible. One such crucial token standard that we will discuss in this extensive article is the ERC-20. Although the impact of the ERC-20 standard on the Ethereum price is very limited, it helps in regulating the creation and issuance of smart contracts on Ethereum, tokens enabling crowdfunding, token sales, and the developing decentralized applications.

ERC-20 Token Standard: Brief Introduction

In the context of token standards, the most crucial standard is ERC-20. It instructs developers to create and distribute tokens on the Ethereum network. Moreover, Vitalik Buterin and Fabin Vogelsteller proposed it in the year 2015 as a technical standard for developing fungible tokens on the Ethereum network. Here, ERC stands for ‘Ethereum Request for Comments,’ and ‘20’ is the number allocated to this proposal. Therefore, in simple terms, ERC-20 is the set of rules that tells how tokens should be produced, distributed, and deployed. With its widespread popularity, many cryptocurrencies employ this token standard, which has become a driving force in the Ethereum ecosystem, with over 1000 contracts on the network. This standard allows developers to create tokens with customizable properties like total supply, token name, symbol, and decimal accuracy. This gives developers the ability to tailor tokens to specific operational needs.

Working for ERC-20 Token Standard

ERC-20 token standards began its operations as a smart contract that follows the standard’s features and requirements. Here’s how the ERC-20 standard works:

Token Contract

A smart contract is put in place on the Ethereum network to create an ERC-20 token. It contains the code that defines the token’s behavior, features, and the mechanism for creating assets that users may purchase. Thousands of tokens are built to ERC-20 standards, which include Polygon (MATIC), NavC, Chainlink (LINK), Shiba Inu (SHIB), Arbitrum (ARB), etc.

Necessary Functions and Events

The ERC-20 token standard outlines which functions and events the token contract must support. These required functions and events contain ways for transferring tokens between addresses, checking an account token balance, and allowing token transfers on behalf of another address.

Fungibility

ERC-20 standard tokens are fungible, which means they may be used interchangeably and have the same value as the similar types of other tokens. This feature facilitates the division and standardization of token units.

Token metadata

It includes additional metadata such as names, symbols, and decimal places. These attributes explain the token’s identity, representation, and accuracy.

Token Ownership

ERC-20 token standards are linked to the Ethereum addresses. All the token balances are tracked and documented in the contract, which includes a mapping of addresses to token balances.

How are ERC-20 Tokens Created?

To comply with the ERC-20 standards, your contract must include the necessary functionality, such as totalSupply, balanceOf, transfer, transferFrom, approve, and allowance. The said functions are listed below:

totalSupply

function totalSupply() public view returns (uint256)

When the user performs the below function, it provides the contract’s total supply of tokens.

balanceOf

function balanceOf(address_owner) public view returns (uint256 balance)

Unlike totalSupply, it requires a parameter, i.e., an address. When performed, this function provides the current balance of the address’s token holdings. However, remember that accounts on the Ethereum network are public, which means that you may check any user balance if you know the address.

transfer

function transfer(address_to, uint256_value) public returns (bool success)

Effectively moves tokens from one user to another. You enter the address you wish to send to and the amount to transfer. When performed, this function generates an event, which effectively instructs the blockchain to add a reference to it.

transferFrom

function transferFrom(address_from, address_to, uint256_value) public returns (bool success)

It is an alternative to the transfer function. It allows more programmability in decentralized systems. It is used to move tokens, similar to the transfer function. However, the tokens don’t need to belong to the person calling the contract. In other words, this function allows you to choose someone or another contract to move payments on your behalf.

approve

function approve (address_spender, uint256_value) public returns (bool success)

It is another useful function of the programmability feature. This function enables you to limit the number of tokens that a smart contract can withdraw from your balance. Without it, there is a chance that the contract will malfunction and take all your funds.

allowance

function allowance (address_owner, address_splender) public view returns (uint256 remaining)

You may use this function in combination with the approve function. When you have been given access to manage your tokens, you may use this function to check how many it can still withdraw.

ERC-20 Tokens Advantages

ERC-20 token provides several benefits to businesses and individuals. However, a few of them are as follows:

Wide Reach

The ERC-20 token standard is widely accepted across the Ethereum ecosystem and is compatible with a wide range of wallets, exchanges, and dApps.

Standardization

ERC-20 follows a strict norm that is applied to the Ethereum ecosystem. This standard provides seamless integration and seamless communication with other systems and wallets that support ERC-20 coins.

Interoperability

They are supported by a few cryptocurrency exchanges, wallets, and decentralized finance services. Their standardization nature allows for simple integration and interoperability across many apps and services in the Ethereum ecosystem.

Security

These token standards are safe and resistant to tampering as they are created and controlled through smart contracts. They also ensure that all transactions are recorded on the blockchain, increasing transparency while lowering the risk of malicious attacks and theft.

Ease of Development

It provides a clear set of rules which makes it easy for developers to generate tokens. Also, the standardized functions and events make the development process easier and assure compatibility with the current infrastructure.

Conclusion

Ethereum’s most important token standard, ERC-20, has dominated the crypto industry. With its ease of development feature, anyone can easily implement a simple contract with a variety of use cases. Moreover, its widespread usage allows developers to create decentralized financial businesses, games, exchanges, and much more.