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Empowering Traders with Expert Education > Blog > Crypto > What is ERC-20 ?

What is ERC-20 ?

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ERC-20 is a cryptocurrency standard for creating and issuing tokens on the Ethereum (ETH) blockchain. The ERC abbreviation stands for “Ethereum request for comment”, i.e. “Ethereum comment request”. This concept is similar to the one devised by the Internet Engineering Task Force to communicate key technical notes and requirements to a group of developers and users. The concept of ERC-20 refers to a scripting standard used on the Ethereum blockchain. This technical standard specifies a set of rules, actions, and steps that an Ethereum token or smart contract must follow. In simpler terms, ERC-20 is a directive that sets the terms for creating a new token or smart contract on the Ethereum blockchain. Tokens and smart contracts to be created on the Ethereum blockchain must comply with the ERC-20 standard or an alternative standard.

ERC-20 tokens

The ERC-20 standard has been one of the most preferred ways to create new tokens for a while. Extremely popular, especially with ICOs and crowdfunding companies. Tens of thousands of tokens have been created and issued under the ERC-20 standard since its inception. Today, the ERC-20 standard provides a common set of rules for more than 200,000 tokens and smart contracts.

How did the ERC-20 come about?


The ERC-20 token standard was proposed by Ethereum (ETH) developer Fabian Vogelsteller in November 2015. In September 2017, it was officially recognized. In other words, the ERC-20 token standard was created in 2015 and adopted by the Ethereum community in 2017. To establish such a standard in the Ethereum (ETH) ecosystem, the developer or developer group wishing to establish the standard must submit an Ethereum Improvement Proposal (EIP). The submitted EIP is then reviewed and approved by a committee. Thus, the proposed EIP becomes an ERC standard. Tokens, smart contracts, and other features to be created on the Ethereum blockchain must comply with one of the approved standards. In addition to ERC-20, there are alternative token standards such as ERC-721, ERC-621, and ERC-827 on the Ethereum network. Each of these has different functionality.

What are the features of tokens?


The ERC-20 token standard is part of the Ethereum (ETH) blockchain. In other words, these tokens are created, produced, and run on the Ethereum blockchain. Each ERC-20 token’s functionality is governed by a set of smart contracts. These smart contracts ensure that trust is not mandatory for any person or organization for the token to work. The smart contract automatically executes the code when the rules or conditions are met. For example, when transferring an ERC-20 token to someone else, the user does not need to trust anyone to pass it on to the recipient.

The ERC-20 token standard describes some functions of Ethereum-based tokens. These functions include the way tokens are transferred between addresses and some important data related to the token smart contract, such as name and supply. In other words, the ERC-20 standard specifies the credentials that a token must contain.

ERC-20 tokens have uses such as crowdfunding, network governance, representation of physical assets, and payment of transaction fees. Sometimes decentralized application developers on the Ethereum network may want to raise money for their projects. For this purpose, they can issue these tokens and sell them. Through these tokens, users can also participate in the governance of applications and other projects operating on the network. An ERC-20 token can represent physical assets such as gold as well as digital assets such as coupons, gold certificates, and loyalty points. Transaction fees on applications and projects can also be paid with the same tokens.

Sometimes projects develop tokens conforming to the ERC-20 standard with new features to meet their own needs.

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