What Are ERC-20 Tokens on the Ethereum Network?

If you’ve looked into Eth, the Ethereum blockchain, or any other cryptocurrencies using the ecosystem, you’ll likely have seen or heard the term ERC-20. This mysterious acronym plays a hugely important role in Ethereum and cryptocurrencies as a whole.

Ethereum’s ERC-20 tokens are the key to enabling anyone to create smart-contract-compliant cryptocurrencies that abide by the guidelines set out by Ethereum. From here, they can harness the power of the entire Ethereum blockchain and ecosystem. But what are they really, and why do they matter so much?

What Is An ERC-20 Token?

Ethereum Request for Comment number 20, better known as ERC-20 is Ethereum’s standard for smart-contract-enabled tokens. Unique to the Ethereum blockchain, these fungible tokens are interchangeable with other tokens.

IMPORTANT: fungible tokens are not to be confused with non-fungible tokens (NFTs).

An ERC-20 token can refer to an asset, ownership, right, access, cryptocurrency, or any other item that is not unique and can be swapped for something else. Essentially, ERC-20 tokens enable digital assets to easily be swapped and exchanged for one another.

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ERC-20 Tokens Explained – Why Were They Created?

When smart contracts first rose to prominence, there were many hurdles to overcome. Particularly as anyone could create them. At this point, there was no standard coding across the board, meaning there was no way to guarantee different tokens could be used, exchanged, or created.

Before standardization, every application had to create its own token, and users working on different platforms would have to contend with a difficult and lengthy process to transfer them back and forth.

The introduction of ERC-20 empowered people and projects to become interconnected. With many well-established digital currencies adopting the ERC-20 standard.

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The Benefits of Ethereum’s ERC-20 Tokens

Developers, project creators, businesses, communities, and individuals all see great benefits from using Ethereum’s ERC-20 tokens. We’ve selected a few that highlight how each user type might benefit.

Interconnected Projects

A standardized approach to tokens enables them to be easily transferred and exchanged. This empowers different projects and communities to collaborate with one another while offering users to ability to easily swap their tokens for another.

Easy Coin Creation

Thanks to standardization, developing your own token couldn’t be faster. By following a few simple steps, a developer can have a new coin up and running with no hassle and with little time used.

• Name your token
• Decide your symbol
• Specify the decimal
• Confirm how it will be divided

Safety & Security

All ERC-20 tokens have built-in digital wallet functionality, meaning anyone holding the token can protect it by storing it in their wallet. This empowers token holders to retain complete control over the digital assets they own rather than leaving them on an exchange.

Cost Effective To Develop

Much time, effort, and money has gone into developing the ERC-20 token standard – it would be incredibly costly to attempt to replicate. All the hard work has been done for you, meaning its developers can easily create a token that offers a great user experience without all the associated costs.

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How Are ERC-20 Tokens Standardized?

There is a selection of functions and events a token must complete to earn ERC-20 standardization. By abiding by the minimum functions, you’ll ensure the security of your token, its holders, and the Ethereum blockchain. If you can’t provide the below, you can’t create an ERC-20-compliant token.

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Total Supply: Quite self-explanatory – this is the total number of tokens ever to be issued.

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Balance: How much of the token is in an owner's account.

Transfer: Executes transfers of a specified number of tokens automatically to a pre-selected recipient address.

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Transfer From: The same as above but specifying the address the transaction came from, not the recipient's address.

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ETH & ERC-20: What’s The Difference?

ERC-20 is developed to be used on the Ethereum blockchain. However, this doesn’t mean that it is the same as the Ethereum cryptocurrency. Eth or Ethereum is the native token used by the Ethereum blockchain to process a transaction on the network.

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ERC-20 is used as the standard for creating smart contract-enabled fungible tokens that can be used in the Ethereum ecosystem. Essentially, ERC-20 is the foundation of the majority of the cryptocurrencies that use Ethereum as their host blockchain.

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In Summary: What Are ERC-20 Tokens

ERC-20 tokens are the standard when it comes to creating smart contract-compliant cryptocurrencies hosted on the Ethereum blockchain. Before their existence, anyone who created new tokens would have to find creative ways of swapping them with one another. It was a long-winded and lengthy process. Now, anyone can create an ERC-20 token that is interchangeable with any other ERC-20 token.

By harnessing the power of the Ethereum blockchain and ERC-20 tokens, cryptocurrency developers, projects, and communities are able to create viable tokens in a cost-effective and time-friendly manner.

These tokens enable a more interconnected and viable Ethereum ecosystem, providing the platform for projects to start, thrive and expand.

Need an ERC-20-compliant digital wallet? Check out Escrypto.