ERC20 Token standard Basics: Beginner’s Guide

The ERC-20 standard was created to expand the possibilities of solving the problem of compatibility of currencies based on the Ethereum blockchain with the...
HomeTechnology NewsThe ERC20 Token standard: what cryptocurrency users should know

The ERC20 Token standard: what cryptocurrency users should know

The world of cryptocurrencies can seem overwhelming to the average investor, and especially those without technical knowledge of blockchain and smart contracts.


However, the possibilities of many new digital currencies have attracted all types of investors, including those who may have never thought about investing in cryptocurrencies or tokens.

Although it is possible for investors without basic knowledge of cryptocurrencies to be successful in the crypto market, having a basic understanding of the general characteristics of many of today’s digital currencies is helpful for investors to make safer and sounder financial decisions. One of the predominant concepts in this environment, and one that is especially relevant to smart contracts and smart property, is the popular ERC20 token development standard.

ERC-20 is a scripting standard used within the Ethereum blockchain. This technical standard dictates a series of rules and actions that an Ethereum token or smart contract must follow and the steps for its implementation. You could think of ERC-20 as a set of basic guidelines and functions that any new token created on the Ethereum network must adhere to.

Prevalence and importance of the ERC-20

ERC stands for “Ethereum Request for Comment”, where the concept “request for comments” is a similar one devised by the Internet Engineering Working Group as a means of sending essential technical notes and requirements to a group. of developers and users.

The ERC-20 standard has been vital to the creation of new tokens in the cryptocurrency world for some time. Its popularity increased with ICOs and crowdfunding companies. Currently, tens of thousands of new tokens have been issued and operate under the ERC-20.

While many ERC-20 smart contracts are used to execute routines and functions in the digital space, there are also many that have been used to create non-fungible tokens (NFTs) in order to promote an initial coin offering (ICO). An ICO is the equivalent of an initial public offering (IPO) on the stock market, but with cryptocurrencies or tokens. A crypto company looking to raise money to create a cryptocurrency, decentralized application, or service can start an ICO to collect funds from investors and early adopters.

According to a report from Yahoo! News, in 2017 ERC-20 tokens were responsible for much of the rise in the ICO market, with many successful cryptocurrencies created under the ERC-20 protocol. For example, EOS remains a popular ERC-20-based token that allowed the platform to raise over $185 million during the first five days of its ICO. Multiple ICOs with tokens created using the ERC20 token have managed to raise several million dollars.

History of the ERC-20

In 2015, ERC-20 was created, a standard developed by the Ethereum community, which was officially recognized in September 2017. To create a standard of this type, a developer or group of developers must submit what is known as an Ethereum Improvement Proposal (EIP) where the new functionality is explained along with its specific protocols and standards. The proposal goes to a committee that reviews, approves, amends and finalizes that EIP, which would then become an ERC.

Smart contracts and other features within Ethereum are required to comply with all approved standards. Although the Create ERC20 token is perhaps the most important and best known of all ERCs, it is certainly not the only one that exists.

Contents of the ERC-20 standard

The ERC-20 contains several functions that a token in compliance with the established rules must be able to implement.

TotalSupply — Information about the total supply of tokens.

BalanceOf — owner’s account balance.

Transfer — Carry out the transfer of a certain quantity of tokens to a given address.

TransferFrom — Executes transfers of a specific number of tokens from a specific address

Approve — Allows a spender to withdraw a specified amount of tokens from a specific account

Allowance — Returns a given amount of tokens from a spender to the owner

Today, people can trade ERC-20 tokens in P2P transactions or through exchange platforms like Coinbase.

Problems and alternatives

Undoubtedly, ERC-20 has been widely accepted as we have seen with the appearance of new tokens under this standard, but there are many developers in the community who claim that ERC-20 is limited and has more than one flaw. In response, shortly after ERC-20 was implemented, several alternative standards began to appear, including ERC-223, which aims to solve the ERC-20’s approval and transfer problems.

Another recent alternative is the ERC-621, which offers the same basic functions as the ERC-20, but allows the total supply of tokens to be increased or decreased. For its part, ERC-827 allows a holder to approve the spending of tokens by a third party. Regardless, each of these new proposals takes the ERC20 token development service standard as a base.