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What is an ERC20 token
ERC20 is deservedly considered one of the major tokens. The main feature that distinguishes ERC20 tokens from others is the fact that they are created, designed, and used on the Ethereum platform alone.
This type of token can be exchanged, sent, and shared with other tokens. The token and its principles are pretty similar to that of Ether, Bitcoin, and Bitcoin Cash. Therefore, it possesses great value and has the ability to be used for wide-ranging transactions.
This type of token has proved to be much more popular and has attracted much attention in the entire cryptocurrency industry. ERC20 has a significant influence on the crypto world, globally, and has received much attention right after its creation. However, how is it actually created?
How is an ERC20 token created?
The process of ERC20 token creation is pretty simple and there is nothing magical, in terms of its ‘technical side’. For the efficient creation of your own token, there are a number of ways but the easiest and the most popular ones are as follows:
- Go to Waves/CryptonoteStarter (or analogs) and release your coin on the interface in 1 minute.
- Learn Solidity/pyEthereum (token based on Ethereum). To start your token you need to use the code of a certain ERC20 token, change a couple of lines and fill the contract in the network in one of the clients (off.client, Ethereum, Metamask etc).
The ERC20 Standard
The standard ERC20 token has the following parameters:
- Name – the full name of the token.
- Symbol – an abbreviation, usually used when displaying balances etc.
- Decimals – the parameter that determines the number of decimal places after the point.
- Total Supply – token issue, i.e. the total number of issued tokens.
This structure allows you to use tokens as a unit of accounting, which resembles the functional properties and the essence of what constitutes as “money” very closely. It is almost entirely consistent with the concept of “cryptocurrency”. This is what makes it possible to use it from stocks to currency. For the end-user, using a token looks like this:
- The user can store their tokens on a cryptocurrency wallet that supports the ERC20 standard. Reliability, the security of storage and transfer of tokens are fully consistent with those for the basic Ethereum cryptocurrency, and for cryptocurrencies in general.
- The user can transfer their tokens to another user, in a similar fashion to the transfer of cryptocurrencies. The speed and cost of transactions are determined by the basic Ethereum crypto standard. Transaction cost slightly differs from ETH transaction.
- An individual or an organization can issue their own token, specify its name, symbol, number of “cents” and total issue. It can then be passed on as a unit of accounting for some benefit related to the issuing token. An excellent example of such token usage is Cardano.
ERC20 Functions
The basic standard does not limit the extension of token functionality in any way, so it is possible to build various modifications that meet specific requirements.
For example, there are security tokens, which are analogous to shares and on which dividends are accrued. At the same time, the operation of their accrual is carried out on the blockchain, i.e. the owners of tokens have a technological possibility to receive a part of the income of some company, and the transfer of tokens is accompanied by the transfer of such possibility to another user.
Utility tokens are functionally oriented to crowdfunding projects, where the owners of tokens claim to receive some goods or services, in case of successful completion of the project, for which they can exchange their tokens. In general, the application of the ERC20 standard allows you to build algorithms of financial interaction of various complexity and structure.
Currently, the total number of existing ERC20 standard tokens is approximately 180,000 and is constantly growing. This standard is supported by an increasing number of software and hardware based cryptocurrency wallets (Metamask, Ledger Nano S, Trezor, MyetherWallet etc.).
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Conclusion
In conclusion, ERC20 standard tokens find their application in a large number of areas. They can be used as pure cryptocurrencies or as a reward of loyalty.
Due to standardisation, which has simplified the development of tokens, growth in the DeFi space has accelerated. The DeFi sphere is already very actively developing and is an ordinary financial instrument built on Ethereum. They are based on open-source protocols or modular structures for the creation and release of digital assets and are designed to provide notable benefits of working with a publicly available blockage.
DeFi has a number of advantages such as resistance to censorship and improved access to financial services. It is likely that very soon we will be able to extend the ERC20 protocol, by adding features to combat vulnerabilities and existing token problems.