Ethereum launched in 2015, and the platform has grown tremendously since then. Not only does Ethereum enable peer-to-peer transactions, but it also provides the means for building smart contracts. The blockchain requires spending real money, so buy cryptocurrency with an exchange; most of them incorporate Ethereum price charts into their platforms. With time, the developer community realized that they needed a common standard for building crypto tokens. This is how the ERC-20 standard came to be. It’s by far the most popular and widely used interface for creating fungible tokens.
What You Need to Know: The ERC-20 Standard
ERC-20 is a technical standard deployed to issue and implement tokens on the Ethereum blockchain, outlining the rules and specifications a token must follow to function optimally and interoperably on the network. The Ethereum blockchain was built specifically for smart contracts that automatically verify fulfillment and enforce the terms of the agreement. This functionality makes it possible to create decentralized applications, explaining why so many platforms and tokens are built on top of the Ethereum blockchain. A token is an address to a balance. When launching a project with a native fungible token on the Ethereum blockchain, it’s necessary to use the ERC-20 standard.
ERC-20 functions allow the user (e.g., a cryptocurrency wallet app) to find the balance and transfer funds from one place to another with suitable authorization. These are the functions that a token must have:
- totalSupply ()– The sum of the total token balances of all the holders must match the total supply.
- balanceOf () – The balances of each account are maintained in a mapping.
- transfer () – Tokens are automatically moved from the sender to the recipient.
- transferFrom () – The approver must call the approve function ahead of time.
- approve () – It permits the DEX to pull the agreed amount from the address.
- allowance () – An allowance is given to another address to retrieve tokens from it.
The Ethereum Network Runs On ETH, Gas, And ERC-20 Tokens
Ether (ETH) is the native token of the Ethereum blockchain. It’s used to create and run applications, pay for transaction fees, and buy goods and services. Ether isn’t the same as Ethereum, but the two terms are used interchangeably. Developers must pay gas fees to develop applications and smart contracts on the Ethereum blockchain in the native cryptocurrency, namely Ether. The fees are prices in small fractions of Ether, called gwei. The exact price of the gas is determined by the supply and demand between the network’s stakers; the more a user has staked, the more money they can earn.
Simply put, gas is the unit that measures how much computational effort is required to execute certain operations on the Ethereum network. If you want to send Ether, interact with a smart contract, and so on, you have to dig into your pockets because the blockchain prioritizes transactions with higher gas fees; the block space is limited. Ethereum has made the transition to the proof-of-stake model, so it’s expected that it’ll reduce power consumption considerably, and gas prices should fall. If you want to transact on the Ethereum blockchain without spending too much money, do it when the network demand is low.
ERC-20 tokens are fungible tokens that reside on the Ethereum blockchain so that they can be traded or exchanged for one another. They’re issued during Initial Coin Offerings (ICOs), capital-raising activities in the blockchain ecosystem. Through trading platforms, investors receive tokens in exchange for their generosity (i.e., their investment in the business), so they become stakeholders. The tokens are non-unique, divisible, and have a clear market value. They may be considered securities by financial regulators, subjecting the issuers to various legal obligations, depending on the jurisdiction. At any rate, it’s necessary to have a cryptocurrency wallet that can store Ethereum tokens, such as MetaMask.
What Are Some Examples Of ERC-20 Tokens?
The ERC-20 standard has enabled the creation of many tokens, of which mention can be made of Binance USD (BUSD). Binance USD is designed to maintain a constant exchange rate with the US dollar, so each BUSD token is backed 1:1 with US dollars held by central banks and major financial institutions. It’s managed to obtain regulatory approval, so it’s subject to audits every month; it’s expected to be a resilient store of value. Cryptocurrency owners can exit a particular investment and protect their profits without having to transfer their funds from exchanges. The price of the stablecoin remains consistent with the asset it’s pegged to.
Another example of an ERC-20 token is Polygon (MATIC), which can be traded on both centralized and decentralized exchanges. As opposed to other cryptocurrencies, Polygon’s supply is limited, so there can be no more than 10,000,000 000 tokens in circulation. The network is capable of coping with 65,000 transactions per second, and it does so for fewer pennies. Polygon doesn’t compete with Ethereum; it relies on it; it’s aimed at creating an infrastructure that can handle the mass adoption of Ethereum, helping it expand in size, efficiency, security, and usefulness.
Shiba Inu (SHIB) is an Ethereum-based token with a fixed supply of one quadrillion tokens. It’s generally regarded as a viable alternative to Dogecoin (DOGE), so don’t be surprised if you come across the term “dogecoin killer”. Shiba Inu has its own decentralized exchange, which can be used for trading various digital assets, including SHIB tokens. The LEASH token is available on the Shiba Inu ecosystem, a cryptocurrency that also operates on the Ethereum platform. You can deposit your coins in a liquidity pool to earn interest; the number of tokens you contribute will determine the rewards you receive for every swap.
In summary, the ERC-20 standard propels the Ethereum network, so it’s beneficial to the blockchain as a whole. The ERC-20 standard permits frictionless interoperability, meaning that any wallet software can transact and monitor the balance. It’s used for all smart contracts on the Ethereum blockchain, and token implementation must follow a strict set of rules. Due to the fact that they’re all stored on the Ethereum network, the tokens are stored at the same address.