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ERC-20 tokens: what are they, how do they work and why are they needed?

Oct 16, 2023
ERC-20 tokens: what are they, how do they work and why are they needed?
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In the world of cryptocurrencies and blockchain, there are numerous different tokens and standards, but one of the most popular and widely used ones is ERC-20 tokens. In this article, we will explore what ERC-20 tokens are, how they work, and what significance they hold for the cryptocurrency ecosystem.

Table of Contents:

ERC-20 Tokens: What Are They, How Do They Work, and Why Are They Needed? - news

What Are ERC-20 Tokens?

ERC-20 tokens are a standard on the Ethereum blockchain that defines the rules for creating and operating tokens. ERC-20 is a technical standard that developers can use to create their own tokens on the Ethereum. This standard was proposed by Fabian Vogelsteller in 2015 and has since become the foundation for many projects and ICOs.

The first ERC-20 tokens began to appear on the Ethereum blockchain.

One of the first and most well-known ERC-20 tokens is Golem (GNT), which was created for decentralized computing.

The ERC-20 standard has become widely recognized and accepted in the world of cryptocurrencies. Many cryptocurrency exchanges and wallets started supporting ERC-20 tokens, providing them with high liquidity and usability.

In subsequent years, the number of projects using ERC-20 tokens continued to grow. ERC-20 tokens found applications in various fields, including stablecoins, gaming tokens, voting, decentralized exchanges, and other applications.

How tokens work on the Ethereum network?

ERC-20 tokens are based on Ethereum smart contracts, which make them programmable and flexible. Smart contracts are sets of rules that define how a token works and what operations can be performed with it. The ERC-20 standard includes a set of mandatory methods and functions that must be implemented in the smart contract for the token to comply with the standard. Some of these functions include:

  • The ability to query the total supply of tokens that have been created.
  • Checking the token balance at a specific address.
  • Transferring tokens from one address to another.
  • Managing permissions to transfer tokens on behalf of other addresses.
  • Allowing third parties to move tokens from one address to another with permission.

ERC-20 tokens also support events that are recorded on the blockchain and allow tracking the movement of tokens.

Why Are ERC-20 Tokens Needed?

ERC-20 tokens have many practical applications and advantages:

Advantage Description
Ease of Creation: Developers can create ERC-20 tokens relatively easily using ready-made templates and smart contracts.
Interoperability: ERC-20 tokens are compatible with each other, making them easily tradable on various exchanges.
Exchange and Wallet Support: Most cryptocurrency exchanges and wallets support ERC-20 tokens, ensuring high liquidity and accessibility.
Versatility of Use: ERC-20 tokens can be used to create stablecoins, voting systems, loyalty programs, financial instruments, and many other applications.
Assets on the Ethereum Blockchain: ERC-20 tokens allow representing almost any asset (physical or virtual) on the Ethereum blockchain, making them available for digital trading and accounting.

ERC-20 tokens play a significant role in the world of cryptocurrencies and blockchain. They provide flexibility and standardization for creating and managing tokens, making them indispensable for many projects and applications. Thanks to ERC-20, the Ethereum ecosystem has become a platform for innovation and the development of numerous projects representing the future of financial technology.

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