What is an ERC-20 Token? A Beginner’s Comprehensive Guide

What is an ERC-20 Token? A Beginner’s Comprehensive Guide

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In 2017 we saw a major explosion in the number of cryptocurrencies that made it to exchanges due, in part, to the Ethereum network.  Ethereum is a development platform for decentralized application development. It allows other developers to utilize the Ethereum network to build their applications on top of it. This makes it much easier to create decentralized applications that use “tokens” as a form of settlement or transaction within the application. Tokens are not a full-on cryptocurrency with their own unique blockchain, they run off the Ethereum blockchain, which allows developers to focus on the application and not the coding of a new blockchain. These tokens can be used in a variety of ways within a decentralized application, but typically we see them as a necessary and fully integrated part of the application itself. Tokens are typically how you interact with the smart contracts that are created by these decentralized applications to perform certain functions within the app.  

The ERC-20 Standard

The process of creating tokens that work efficiently on the Ethereum network has significantly evolved in the last 2 years with the creation of what is known as the “ERC-20 Standard”. This is where an ERC-20 Token gets its name from. The ERC-20 Standard outlines a set of common rules that all tokens can follow on the Ethereum network to produce expected results.
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This makes it very easy for developers to quickly understand how their token will work across the Ethereum network at large. The ERC-20 standard significantly reduces the creation time of a project, because a developer does not have to continually reinvent how tokens are interacted with for basic functions like transfers or retrieving data about a token. Since these easy-to-follow set of ERC-20 standards have been in place we have seen a huge increase in the number of tokens in the cryptocurrency space. This is the reason why an ERC-20 token will only work on the Ethereum platform, they are essentially tied to the network that they were developed upon. So, what does a token need to have to be ERC20 compliant? It is basically a set of 6 functions that can be recognized and identified by other smart contracts, which in turn leads to seamless interactions. When executed, the following 4 basic activities are what all the ERC20 tokens required to do:
  • Get the total token supply.
  • Get the account balance.
  • Transfer the token from one party to another.
  • Approve the use of the token as a monetary asset.
 

The Popularity Of ERC-20 Tokens

Most of the Ethereum based tokens being created today are ERC-20 compliant even though it is a standard that is not officially enforced or adopted at this point. Some of the more popular ERC-20 tokens are OmiseGo (OMG), EOS, Salt, Power Ledger (POWR), and Basic Attention Token (BAT) just to name a few. All of these projects are built of off the Ethereum platform and incorporate their own ERC-20 token to interact with their decentralized application.
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While this makes it incredibly easy to get a project off the ground, the drawback is that they can only ever live on the Ethereum platform and that may limit their utility in the future. With it being so easy to create them, we have seen some really amazing projects as well as some really bad ones, so it is always best to do your own research before supporting a particular token. Nevertheless, ERC-20 tokens are here to stay for the foreseeable future and the Ethereum platform will only grow strong with each new token created.  

Who Can Build ERC-20 Tokens?

Anyone – from teams focused on revolutionary projects to scammers who are looking to pull a Confido – crypto’s most recent exit scam on the space. That’s because both Ethereum and its ERC-20 token standard are open-source, free for anyone to use. But that’s just regarding accessibility, in that anyone can access the tools and resources needed to create a token. Having the requisite technical skills needed to actually program a token is a whole different question. To do this, you need to have a technical competency in Ethereum smart contracts and their associated programming language, Solidity.
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To that end, very few people in the world can interact with and code on the ERC-20 standard right now simply to the extent that the crypto space is still young and Solidity is still relatively unknown. But it’s certainly not impossible to learn Solidity, and the number of programmers comfortable with the language is already swelling right before our very eyes and will surely continue to swell in the years ahead. Accordingly, perhaps one day in the not so distant future the many — and not the few — will be able to make their own ERC-20 tokens.  

Token’s Functionality

In the first place, you have to understand Ethereum itself as engendering programmable money. In extension, since ERC-20 tokens are built atop Ethereum, they’re programmable tokens: their customization potential is limited only by their designers' imaginations. Their use-cases are significant and varied, indeed, as these tokens can facilitate:
  • Collateral deals
  • Securities dividends
  • Token-based voting systems
  • Native currencies for decentralized apps
  • Tokenized assets (e.g. gold, silver)
  • Staking platforms
And these are just a few possibilities. Thus there are currently more than 5,000 ERC-20 tokens in existence for good reason. Their applications are seemingly endless.  

ERC-20 Tokens Wallets

You are able to store any ERC-20 tokens in MyEtherWallet, which is an easy and free way to generate an Ethereum wallet address. Once you have created your wallet and logged in to the site, you will see any tokens you have listed in the right-hand column.
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We would recommend that you purchase either a Trezor or a Ledger hardware wallet if you are storing a non-trivial amount of Ether or ERC-20 tokens, both of these wallets can store these tokens and interact with MyEtherWallet which adds an extra layer of protection as your private keys are never exposed to your computer.
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Some Interesting ERC-20 Tokens To Consider
  • Augur (REP)
  • OmiseGo (OMG)
  • Raiden (RDN)
  • ChainLink (LINK)
  • Power Ledger (POWR)
  • Golem (GNT)
  • TenX (PAY)
  • Iconomi (ICN)
  • Basic Attention Token (BAT)
  • Kyber Network (KNC)
  • 0x (ZRX)
  • Status (SNT)
  • VeChain (VEN)
  • Aragon (ANT)
Each of these projects brings something very different to the table. But together they comprise the most dominant and arguably the most interesting ERC-20 tokens in the top 100 cryptocurrencies by market capitalization as of today, November 24th, 2017. If you’re interested in taking a deeper dive into Ethereum-based tokens, the aforementioned tokens would be a great place to start. Be sure to do your own homework; some will naturally appeal more to your personal sensibilities than others. But if you’re fascinated with Bitcoin and Ethereum and looking to get into other promising cryptos, these top ERC-20 projects may certainly pique your interest.

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