What is Ethereum ERC-20 And Why Is It So Important

Ethereum ERC-20 And Why Is It So Important

What is Ethereum?

It is an open-source blockchain which is public. It is decentralized and has smart contract functionalities which are turing-complete.

Vitalik Buterin proposed the idea of creating such a platform in 2013 and since then it has established itself as the second most popular crypto after Bitcoin.

Ethereum & The ICO 

Initial Coin Offering is funding with cryptocurrencies. Token or coins are used to purchase crypto as an investor. In return, you will get legal tender or other cryptocurrencies like Bitcoin or Ethereum.

If the ICO manages to collect the needed amount and the project is successfully started, then all the sold coins will have value.

2017 was the year of ICOs. Nobody could keep track of the projects appearing daily. They all promised amazing results and asked for funding. Now things are much calmer – the investors have already left the space, many projects never got launched.

What exactly is a Token?

They are a very important part of smart contracts which are located on the Ethereum Blockchain. A token could do many different things, like:

  • Toll: it could be a gateway to a Dapp. For accessing the Dapp, you will be required to hold the tokens.
  • Voting Rights: The owners of tokens also might have some voting rights. For example, those holding EOS tokens can vote for block producers. It wants to become an operating system that is decentralized and enables work with industrial-scale applications.
  • Value Exchange: This is one of the most widespread tasks a token might have. They can help with the construction of an internal economic system within the app.
  • Enhancing the UX: It can help enrich the UX in a certain environment. For example, in the browser Brave, those who have tokens will get the chance to change the environment and make the user experience better, like putting appropriate ads.
  • Currency: Tokens can also be used to keep value and then used to make transactions either in or out of the ecosystem.

What is ERC-20?

ERC stands for Ethereum Request For Comments and 20 is a unique ID. ERC-20 is a technical standard that could be found for smart contracts that are for implementing tokens. Most tokens are compliant with this standard.

It is a protocol standard which puts particular rules and standards  in place. They help when it comes to issuing tokens. A token is like a smart contract which is required to follow some rules. A number of functions which are consistent in all tokens are transferFrom and balanceOf.

In this way you can see what amount of a particular token is owned by one person and it also possesses functions so that it could be transferred.

The importance of ERC-20 Standard 

The fact that there is a common function in all ERC-20 tokens enables users to interact with them in the same manner. Once you create an application that works okay with one ERC-20, this means that this same program will also be able to interact fine with all ERC-20 out there.

This helps with the easy addition of tokens to an application and eliminates the requirements for custom code. By just putting the contact address of the new token you will be able to add it to the app. For instance, when there is an exchange, a new token is added, which means that the addition of a particular new smart contract is needed.

You can order the contract to send a certain amount of token with the other side’s wallet address as a recipient. If there is a requested withdrawal, the exchange will inform the contract to send tokens back out to people.

An execution of this logic is required only once. In case a new token is to be added, then you just need to add the new contract address to the database.