Everything you need to know about ERC-20 Token Contracts

Published by : Mudit | Nov-26-2018

ERC-20 token contracts

  • Ethereum stands at the second spot, after the most popular cryptocurrency Bitcoin. The justification of this assertion lies in the price of ether and market capitalization, recorded by coin market cap.

    Like Bitcoin, Ethereum is also a blockchain technology-based platform. Ultimately, it makes it decentralized.

    Ether is the native cryptocurrency on the Ethereum network. However, other crypto tokens also can be traded on the Ethereum network.
    These tokens refer to digital assets that represent physical assets as well.

    In different words, crypto tokens are similar to Smart Contracts, which leverage the Ethereum Blockchain.

    The Ethereum network is quite synonymous with Smart Contracts and standardized tokens also known as ERC-20 token contracts.

    While Smart Contracts have gained immense popularity in the blockchain world, the ERC-20 token contracts remained foreign.

    It’s maybe because ERC-20 tokens contracts came into existence just one and a half year ago.

    Understanding Token Contracts

    To know what are ERC-20 token contracts, let’s understand Token Contracts first. In a nutshell, these token contracts are smart contracts which contain account addresses and the balances in those accounts.

    Essentially, the balance in smart contracts represents the value often set by the creator of the contract. So, the unit of the balance in the contract is what we know as token.

    For achieving transparency and accountability in transactions, the token contract automatically updates the balances of the two accounts involved, every time a token is transferred.

    It’s vital to note that, if allowed by contracts, the supply of tokens can be changed.

    Thus, you can increase tokens by minting new ones or decrease them by burning the current token. Burning existing token requires sending them to an unknown private key, which’s often known as the Zero address.

    Knowing ERC-20 Token Contracts

    Known as Ethereum based token, ERC-20 token contracts are created using the ERC30 standard protocol. HTTP is a quite common premise, but most people don’t have an idea that it’s the protocol used to power the internet.

    Likewise, ERC20 states the commands that token must implement. It is a just simple specification that requires a token to follow. So, when a token is developed on the ERC20 standard, it qualifies to be called as an ERC-20 Token.

    It’s the ERC standards’ key functions that ensure a token is traded on exchanges. Some of these functions consist of balance inquiry for an individual address, monitoring the whole supply of the tokens and sending the tokens from one address to another.

    Thus, it becomes easy to add the tokens to an exchange platform. However, before the development of the ERC20 protocol, most tokens were developed using different functions.

    Consequently, to trade two tokens, it was required that the traded familiarize themselves with the intricacies of each token involved. But, when developing an exchange platform, on which these token can be traded easily, would involve major complexities.

    Essentially, the key role of the ERC- 20 protocol is to bring more uniformity, lower the risk in developing token and enhance the liquidity of tokens.

    ERC-20 Functions:

    The functions incorporated in ERC 20 tokens include checking balances of accounts, verifying and sending the crypto from one address to another. The ‘balance of’ function enables one to see the balance of an individual address. Anybody can view the balance of any particular reason for the reason that the blockchain is a distributed public ledger.

    However, it’s not possible for anyone in the network to know the owner’s details of the address since blockchain doesn’t store personal information. The ‘transfer’option enables one to send tokens from address to another.

    Moreover, no confirmation checks are done by receiver’s end meaning that the sender of the tokens must perform their due diligence to verify that all the details are not incorrect.

    It is important to know that when dealing with smart contracts, the ‘transfer’ function cannot suffice on itself.

    Hence, the ‘approve ‘ function comes at the fore.

    For instance, person A executes a contract on the network. That contract requires five tokens to be executed. Person B wants to get into the contract and has 20 tokens in his address. In this case, approve and transferring would require to be used jointly.

    First, person B would provide his address approval to enable the transfer of 5 tokens to A’s address. It’s called the allowance.

    After the allowance, person B can transfer the tokens to A and get into the contract to execute it.

    Also Read: Ethereum: The Platform That Brings Blockchain Into The Mainstream

    Ethereum is outlining a bright future for a Blockchain-powered World

    The bottom line:

    Development of tokens is mired involving a host of intricacies and risks, which ERC20 standard has helped in eradicating. Nonetheless, ERC20 has its flaws. And that’s why ERC223 proposal proposes other functions that can enhance the ERC20 protocol. However, ERC223 incompatible with ERC20 meaning blockchain developers will need to keep on using the latter.

    But, the process of updating ERC223 is underway, and we need to keep track of it.

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