ERC-20 Ethereum Token Standard?
For interoperability between tokens built on the Ethereum Network, ERC-20 standard was revolutionary
The Ethereum ERC20 token standard is a template for creating fungible tokens that are compatible with the larger Ethereum network. Ethereum, or ether, is a cryptocurrency that enables the creation of a variety of applications, including tokens, that do not require brokerage services to operate, unlike most traditional applications.
The ERC20 standard has penetrated almost every corner of the crypto ecosystem. A lot of popular tokens, such as the stablecoin tether and the main oracle service Chainlink, are actually ERC20 tokens under the hood.
To comprehend how this is useful, here are some of the issues token creators encounter when they make projects from scratch:
- Smart contract creation: Smart contracts play a vital role in determining what the total supply of the token will be, how that supply is distributed, what is the issuance schedule, and so on. They also handle key functions such as querying cardholder balances and facilitating token transfers.
- Support from wallets and exchanges: Creating tokens without using a well-integrated standard like the ERC-20 framework means additional work is needed to make them compatible with third-party services like wallets and exchange platforms.
What are the characteristics of ERC-20?
At a high level:
- Ethereum: Each ERC20 token is deployed on the Ethereum network.
- total supply: a process that outlines the total supply of a token.
- balance of: indicates how many tokens a particular address has.
- transfer: transfers rights of a token to another user.
What can a user do with tokens?
- Crowdfunding: Sometimes Ethereum app builders choose to raise money for their tasks via crowdfunding.
- Voting rights: Tokens can be used for voting on task decisions. In this instance, the more tokens users have the more impact they have over each election.
- Transaction fees: Every Ethereum transaction (including token transactions) includes the possibility of paying fees. If the network is congested, a fee, called gas, can help speed up the transaction. The fee is deducted from the total number of user tokens.
- New features: Sometimes developers want a token for buying the capability in their projects, however the local token on Ethereum, ether, isn’t always sufficient for them. So, they invent a brand new token with the capability they want.
Future of the Ethereum token standard?
Despite its many advantages, the ERC20 standard is far from perfect. “Critical issues” with the standard have been used to steal at least $3 million, and during times of high Ethereum congestion, transactions can take long periods of time to process.
Developers need to code this and other issues with ERC20. Developers have also been experimenting for some time with alternative standards such as ERC223 and ERC777 which may eventually replace ERC20. However, ERC20 is by far the most popular standard at the moment.