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A Beginners Guide to ERC 20 Tokens

Jon Ganor
Jon Ganor
A Beginners Guide to ERC 20 Tokens
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The early days of Ethereum marked a significant milestone in the history of blockchain technology. On July 30, 2015, the Ethereum network went live, unleashing the potential of smart contracts on a transparent blockchain. The launch of Ethereum brought a new era of innovation and possibilities, sparking the development of a vibrant ecosystem of projects and ideas.

One of the most crucial developments during this period was the creation of the ERC-20 standard in 2015. Ethereum developers devised the ERC-20 standard on behalf of the broader Ethereum community, and was officially recognized by September 2017. This standard revolutionized how tokens were created on the Ethereum blockchain, providing a common set of rules and protocols for creating fungible tokens.

The creation of the ERC-20 standard laid the foundation for the explosive growth of tokenization on the Ethereum network. Today, thousands of tokens conforming to this standard exist, powering various projects, DeFi platforms, and decentralized ecosystems. This standardized approach enabled interoperability, liquidity, and ease of use, making ERC-20 tokens a core element of the blockchain and cryptocurrency space.

What is ERC 20 Token?

An ERC-20 token is a type of digital asset that is built and operates on the Ethereum blockchain. It follows a specific set of rules and standards defined in the Ethereum Improvement Proposal 20 (EIP-20), which was introduced in 2015. The ERC-20 standard lays out the necessary functions and protocols that a token must adhere to in order to be considered an ERC-20 token.

ERC-20 tokens are fungible, meaning that each unit of the token is identical and interchangeable with any other unit of the same token. This standardization allows for seamless interactions between different tokens, enabling them to be traded, exchanged, and utilized within various DApps and smart contracts on the Ethereum network.

The ERC-20 standard provides a basic framework for token creation, defining crucial functionalities such as transferring tokens, checking the balance of an address, and approving third-party addresses to spend tokens on behalf of the token holder. These standardized functions facilitate compatibility and interoperability between different tokens and DApps. In turn, the ERC-20 standard fostered a rich ecosystem of DeFi applications, tokenized assets, and blockchain-based projects.

ERC-20 tokens have become the de facto standard for creating and managing digital assets on the Ethereum network. They have played a crucial role in the growth of the DeFi space, enabling the issuance of tokenized assets, DEXs, liquidity pools, and a wide range of products. The popularity and adoption of ERC-20 tokens highlight the significance of standards in the blockchain industry. Standards provide a common language and framework for developers and users to interact with digital assets on the Ethereum blockchain.

The Pros & Cons of ERC 20 Token 

ERC-20 tokens have become a prominent and widely adopted feature in the blockchain industry due to their standardized rules, facilitating smooth interactions between users and developers within the Ethereum ecosystem. These tokens offer several advantages: interoperability, easy creation, decentralization, and high liquidity. The standardized format allows developers to quickly create new tokens, fostering innovation and a thriving token economy. 

However, ERC-20 tokens also face challenges, such as scalability issues on the Ethereum network, potential vulnerabilities in smart contracts, lack of standardization across projects, and the irreversible nature of transactions. Addressing these concerns will be vital for maximizing the potential and long-term success of ERC-20 tokens in the evolving blockchain landscape. Nonetheless, their popularity and significance in cryptocurrency demonstrate the value of standards in promoting a seamless and interconnected blockchain ecosystem.

Use-cases of ERC 20 Token

ERC-20 tokens, the most widely adopted standard for creating tokens on Ethereum, have many use cases extending beyond simple cryptocurrencies.

In the realm of DeFi, ERC-20 tokens play a pivotal role as the foundation for lending, borrowing, liquidity provision, and yield farming protocols. They enable users to access and participate in various DeFi platforms, such as DEXs and yield farming, offering liquidity and earning rewards through staking and yield farming.

Moreover, ERC-20 tokens have proven valuable in supply chain and logistics applications, facilitating tracking and verifying product authenticity. Each supply chain step can be recorded on the blockchain, ensuring transparency and combating counterfeit goods.

Furthermore, ERC-20 tokens are employed for identity management solutions, allowing users to securely control and manage their personal data. By storing identity information on the blockchain, users can share specific data with authorized parties, enhancing privacy and security.

Lastly, token sales frequently utilize ERC-20 tokens as a means of fundraising for blockchain projects. The ease of creation and compatibility with various wallets and exchanges make ERC-20 tokens attractive for startups seeking to raise capital and build their ecosystems.

How to Create ERC 20 Token?

To create an ERC-20 token, developers must deploy a smart contract on the Ethereum blockchain that conforms to the EIP-20 guidelines. Once deployed, the token can be distributed to users, and its value and utility are determined by market demand and the specific use cases enabled by the smart contract. There are a few different websites that can streamline the launch of an ERC-20 token.

Other Popular Token Standards

The Ethereum blockchain has several popular token standards that facilitate a variety of functionalities and use cases for digital assets. These token standards ensure compatibility and interaction within the Ethereum ecosystem. Let's explore each of these standards and their respective roles:

ERC-721

This standard is designed for NFTs, which represent unique, one-of-a-kind assets. Examples include digital artwork, music, or in-game items. ERC-721 tokens have distinct properties and do not have a uniform value like fungible tokens. This standard specifies functions and events that ensure the uniqueness and indivisibility of NFTs.

ERC-1155

This is a versatile token standard that combines the features of both ERC-20 and ERC-721. It allows developers to create tokens that can be both fungible and non-fungible, offering greater flexibility in representing digital assets. ERC-1155 is under active development and holds the potential for widespread use in the future.

ERC-223

This token standard is an improvement over ERC-20, addressing certain inefficiencies related to token transfers. ERC-223 includes an additional function for handling incoming token transactions, resulting in more efficient and secure token transfers.

ERC-777

A newer token standard that builds on ERC-20, offering additional functionality for tokens. This can include features like a mixer contract for enhanced transaction privacy and an emergency recovery function for scenarios where users may lose their private keys.

What is Hord Token?

Hord Token or HORD is an ERC-20 token that operates on both the Ethereum and Arbitrum blockchains. It plays a pivotal role within the Liquid Staking Derivatives Finance or LSD ecosystem, offering unique value-accruing features to its holders. 

At the core of the Hord ecosystem lies the concept of liquid staking, which allows users to stake their Ethereum while receiving liquid staking derivatives in return. These liquid staking derivatives offer users the potential to participate in DeFi activities while their staked assets continue to accrue ETH Staking rewards. HORD serves as an integral part of this ecosystem, allowing token holders to capitalize on the benefits of staking without compromising liquidity.

Final Thoughts

The future of token standards on Ethereum holds great promise as the blockchain ecosystem continues to evolve and innovate. While ERC-20 has undoubtedly been a fundamental standard that facilitated the growth of the token economy on Ethereum, advancements in technology and the ever-changing needs of the DeFi space are paving the way for more sophisticated token standards to emerge.

As DeFi projects become increasingly complex and diverse, there is a growing demand for token standards that offer enhanced functionalities and interoperability. Newer standards like ERC-721, ERC-1155, ERC-223, and ERC-777 are already pushing the boundaries of what is possible with tokens on the Ethereum blockchain. ERC-721 introduced non-fungible tokens (NFTs), revolutionizing digital ownership and enabling unique assets like digital art and collectibles. ERC-1155 combines the features of fungible and non-fungible tokens, providing developers with greater flexibility in designing complex token ecosystems.

Additionally, ERC-223 and ERC-777 aim to improve upon the ERC-20 standard by enhancing token functionality, allowing for more efficient and secure transactions. As dApps grow in sophistication and scale, these newer token standards will likely gain popularity. Newer standards will likely offer developers and users a more diverse and robust set of tools to build and interact with digital assets.

While ERC-20 remains widely used, the dynamic nature of the blockchain space suggests that newer and more advanced standards may eventually replace it. As the Ethereum community continues to explore innovative ways to enhance tokenization and smart contract capabilities, these newer standards are expected to become the industry standard for a wide range of DeFi use cases. The future of token standards on Ethereum is characterized by continuous innovation, opening up exciting opportunities for developers, users, and the broader blockchain ecosystem.

FAQ

What is an ERC-20 Token? 

The ERC-20 standard is the most common standard for creating an Ethereum-based token. 

How to Sell ERC-20 Tokens?

Different ERC-20 tokens may be listed on different exchanges or DEXs. Please look into the website of the token you wish to sell.

Does Fantom Support ERC-20 Tokens?

Yes! As an EVM blockchain, Fantom supports ERC-20 tokens.

Does Polygon Support ERC-20 Tokens?

Yes! As an EVM blockchain, Polygon supports ERC-20 tokens.

What is an ERC-20 wallet?

All popular Ethereum wallets support ERC-20 tokens. 

What is an ERC-20 Address? 

Any Ethereum address is by extension, an ERC-20 address.

How to Swap ERC 20 Tokens? 

Dexs such as Uniswap are a common place to trade and swap ERC-20 tokens.