The ERC-20 standard specifies the requirements that crypto tokens must meet to run properly on the Ethereum blockchain. Developers and entrepreneurs will use it to create new tokens that work inside Ethereum's decentralized app ecosystem. ERC-20 provides one of the crucial foundations for Ethereum blockchain development, with nearly 1,000 crypto assets that meet its requirements in circulation today.
Ethereum was introduced in 2015 as a decentralized, blockchain-based global technology with the potential to act as the basis for an ecosystem of interoperable, decentralized applications (dApps) with token economies.
The Ethereum developer group soon realized, however, that to construct this ecosystem, they required a common standard for creating smart contract-powered crypto tokens that control those dApps. ERC-20 is the name of the standard.
It is a set of rules and technical requirements that an Ethereum token must conform to operate optimally and intraoperatively on the Ethereum blockchain. Smart contracts, which are self-executing software programs that specify how blockchain protocols monitor, execute, and/or record transactions, are used to create tokens. ERC-20 tokens can be traded on the Ethereum network and are interoperable with other Ethereum-based decentralized applications.
Although there are other Ethereum token specifications, ERC-20 offers a more clear route through the blockchain ecosystem for wallets, exchanges, and app developers. It is widely regarded as a catalyst for the massive increase in decentralized applications and Ethereum-based crypto tokens in 2017 and the development of decentralized finance (DeFi).
According to market data from June 2020, the ERC-20 standard was used to build 47 of the top 100 crypto tokens by market capitalization.
ERC-20 is a portal into the broader blockchain space, as well as an integral part of the Ethereum ecosystem.
First introduced in 2015, the ERC-20 standard got its official recognition in late 2017 by Ethereum founder Vitalik Buterin and Ethereum developer Fabian Vogelsteller via an Ethereum Improvement Proposal (EIP). It outlined several features of the standard. Such as, it outlined the total supply, or the total number of token generation, how a code should move tokens to a specified ERC-20 address, how to transfer tokens from a specified ERC-20 address, how it will allow for the withdrawal of tokens from a specified account, and how it facilitates token return from a spender to an owner.
To put it another way, the ERC-20 standard regulates the way of token exchange, transaction acceptance, and user access to information about the token and its infrastructure.
When using an ERC-20 token to make a transaction, ether used for it covers gas costs instead of paying fees. Miners on the Ethereum network pay the fees used to add new information blocks to the Ethereum blockchain comprising ERC-20 transactions.
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For a variety of purposes, using the ERC-20 standard to create a token is advantageous. First, when making a new token or dApp, developers don't have to start from scratch. The ERC-20 standard has created a major network effect as a result of its popularity as a token standard. Developers and users can be confident that any token development with the ERC-20 token standard will work with hundreds of other ERC-20 tokens and services that already support them.
Fungibility and flexibility are two other benefits of the ERC-20 norm. Fungibility refers to the fact that ERC-20 tokens are functionally identical and therefore interchangeable. It is essential if developers want their tokens to work as a currency. ERC-20 tokens serve as the basis for a variety of applications in terms of flexibility:
Utility tokens are a form of cryptocurrency that can facilitate a specific service. Security tokens are digital representations of securities such as stocks that offer the holder a stake in the project. Users can communicate with blockchain apps with less risk by using stablecoins, which are pegged to more stable assets like fiat currency, some cryptocurrencies, and commodities.
The use cases for ERC-20 continue to grow, with about 1,000 tokens in circulation today. ERC-20 tokens reflect a wide range of digital and physical properties. They can represent real estate, art, stocks, unused hard drive space, and other things. ERC-20 tokens serve several purposes within their developed structures. For instance, they can facilitate the development of decentralized financial services, exchanges, wallets, and business protocols.
It's also worth noting how the ERC-20 standard affected the rise of initial coin offerings (ICOs). ERC-20 enables developers to quickly construct a token using the framework. It results in a substantial reduction in the amount required for technical know-how and work needed to launch a token.
Developers were able to collect a large amount of money by crowd-selling the tokens to the Ethereum group. This helped to finance many of the significant sites and initiatives that now make up the Ethereum ecosystem.
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Though ERC-20 is still the de facto Ethereum token standard, several new token standards have emerged. ERC-223, ERC-777, and ERC-1155 are among them. Each one aspires to build on the original while keeping ERC-20 as the basis.
ERC-20 is proving a driving force in the Ethereum token development ecosystem. It has emerged as a boon to the blockchain community in general. ERC-20 encouraged widespread acceptance of decentralized technology by establishing a shared standard for participation in the blockchain industry. Its implementation exemplifies Ethereum's community-driven governance, and its network impact ensures that Ethereum is currently the center of blockchain growth.
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