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What are ERC-20 Tokens?

What are ERC-20 Tokens?
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tl;dr

  • EIP-20 introduced the widely-used ERC-20 token standard for fungible tokens.
  • Other notable Ethereum token standards include ERC-721 for NFTs and ERC-1155 for efficient trades.
  • ERC-20 specifies functions like TotalSupply, BalanceOf, Transfer, and events like Transfer and Approval.
  • Some popular ERC-20 tokens include Chainlink (LINK), stablecoins such as USDT, USDC, and DAI, and Uniswap's UNI.

Introduction

Ethereum is an open-source blockchain platform that allows anyone to build decentralized applications or dApps on top of it. One of the key features of Ethereum is that anyone can issue Ethereum Improvement Proposals or EIPs to improve the network and introduce new token standards. EIPs are similar to the Bitcoin Improvement Proposals or BIPs and are a way for the Ethereum community to propose changes to the network.

One of the first EIPs issued in Ethereum was EIP-20 on November 19, 2015. EIP-20 introduced the ERC-20 token standard that became the most common token standard in the Ethereum network. ERC-20 tokens are fungible tokens that can be exchanged for each other on a one-to-one basis. This token standard is widely used for dApps, as it allows for easy creation and management of tokens.

Apart from ERC-20, there are other notable token standards in the Ethereum network that have been introduced through EIPs. One of them is ERC-721, which is a standard interface for non-fungible tokens or NFTs. NFTs are unique and cannot be exchanged for each other on a one-to-one basis. This token standard is widely used for tokenized art collections and other unique digital assets.

Another notable token standard is ERC-1155, which allows for more efficient trades and bundling of transactions. This token standard allows for creating both utility tokens and NFTs. This token standard is widely used for gaming and other applications where users need to buy and sell multiple tokens in a single transaction.

What is the ERC-20 Standard? 

The ERC-20 standard specifies a set of functions and events that must be included in a token's smart contract in order for it to be considered ERC-20 compliant. These functions and events define the basic functionality of the token and ensure that it can be easily integrated into exchanges, wallets, and other applications.

These functions include:

  • TotalSupply: The total number of tokens that will ever be issued
  • BalanceOf: The account balance of a token owner's account
  • Transfer: Automatically executes transfers of a specified number of tokens to a specified address for transactions using the token
  • TransferFrom: Automatically executes transfers of a specified number of tokens from a specified address using the token
  • Approve: Allows a spender to withdraw a set number of tokens from a specified account, up to a specific amount
  • Allowance: Returns a set number of tokens from a spender to the owner

Events include:

  • Transfer: An event triggered when a transfer is successful
  • Approval: A log of an approved event (an event)

Optional fields include:

  • Token name
  • Symbol ot ticker 
  • Decimal points

One of the key features of the ERC-20 standard is that it defines a set of fungible tokens. This means that any one token is exactly equal to any other token, and no tokens have special rights or behavior associated with them. This makes ERC-20 tokens useful for a wide range of applications, including as a medium of exchange currency, voting rights, staking, and representing shares in a company.

BEP-20 vs. ERC-20

BEP-20 and ERC-20 are both token standards that allow for the creation and management of tokens on their respective blockchain networks and bear many resemblences. BEP-20 is a token standard that is specifically designed for the BNB blockchain, while ERC-20 is the token standard used on the Ethereum blockchain.

While BEP-20 is essentially the ERC-20 standard adapted to BNB, there are some key differences between the two. One of the most notable differences is the transaction speed and cost. The BNB is built to be faster and cheaper than the Ethereum network, which means that BEP-20 tokens can be transferred and traded more quickly and with lower fees.

Another difference between the two standards is the ecosystem surrounding them. The Ethereum network has a larger and more established ecosystem, with more developers, users, and projects built on top of it. However, BNB is rapidly growing in popularity, and many new projects are being launched on it.

What is The Difference between ETH and ERC-20 Tokens?

ETH is a cryptocurrency that operates on the Ethereum blockchain network. ERC-20 tokens, on the other hand, are tokens that are built on the Ethereum network using the ERC-20 token standard.

The main difference between ETH and ERC-20 tokens is that ETH is the native currency of the Ethereum network, while ERC-20 tokens are created by developers to serve a specific purpose. ERC-20 tokens can be used for a wide range of purposes, such as representing digital assets, creating loyalty programs, and facilitating fundraising through ICOs.

ETH is required to pay for transactions and smart contract interactions on the network as the native currency of Ethereum. Another difference is ETH is widely accepted as a means of payment, while ERC-20 tokens may have limited acceptance or use cases depending on their specific purpose.

What are ERC-20 Compatible Wallets?

As ERC-20 tokens are built on the Ethereum network, any wallet that supports Ethereum will also support ERC-20 tokens. 

Some of the most popular ERC-20 compatible wallets include Ledger, Trezor, Metamask, and Trust Wallet. These wallets provide a secure and user-friendly way to manage ERC-20 tokens, allowing users to send and receive tokens, view their balance, and track their transaction history. Having an ERC-20 compatible wallet is essential for anyone who wants to invest in or use ERC-20 tokens.

Examples of ERC-20 Tokens 

ERC-20 tokens have become increasingly popular and are used for a wide range of purposes. Some of the most well-known ERC-20 tokens include Chainlink or LINK, stablecoins such as USDT, USDC, and DAI, and Uniswap’s UNI.

Chainlink is a decentralized oracle network that provides data and information to smart contracts on the blockchain. USDT is a stablecoin pegged to the US dollar and widely used for trading and as a store of value. UNI is the native token of the Uniswap DEX and is used for governance proposals and liquidity provision. 

These examples demonstrate the diverse uses and applications of ERC-20 tokens in the cryptocurrency ecosystem.

Conclusion

The ERC-20 token standard was one of the first token standards created for the Ethereum network, and it remains one of the most popular and widely used standards to this day. Its popularity can be attributed to its simplicity, versatility, and compatibility.

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