Back to basics: Understanding ERC20 tokens
With the emergence of initial coin offerings, ERC20 took center stage. ERC20 tokens are single-handedly responsible for the billion-dollar ICO industry, and these tokens have played a major role in mainstream adoption of cryptocurrencies. Majority tokens introduced by a token sale platform were based on ERC20 tokens, and we can see many more upcoming ICO projects based on this token.
But, what exactly is ERC20 token?
ERC refers to Ethereum Request for Comments and the number 20 denotes the unique ID allocated to differentiate this standard from others. ERC20 is a protocol that defines a set of commands that a token needs to execute on the Ethereum platform in order to be accepted as an ERC20 token. These set of rules apply to every ERC20 token on the Ethereum network, in addition allowing a token to interact with other tokens on the network.
Besides, ERC20 token comprises of the basic modalities related to what a token needs to implement so as to start trading post launch. These modalities include token transfer, balance inquiry for particular addresses, and determining total token supply.
Before ERC20 tokens, ICO tokens that were launched on the Ethereum blockchain executed their own functionalities that explained a token’s behavior on the network. This led to different token transfer functions, unique token names, and a different set of rules, which eventually made it complex to move contracts between multiple tokens. However, ERC20 token standard introduced the use of smart contracts.
What is a smart contract?
A smart contract is a program that automatically executes the contract when set of conditions are met. The benefit of smart contracts is that they allow exchange of money, shares, assets and other valuables in a trust-free, transparent and decentralized manner. In addition, a smart contract eliminates the need for a middleman in transactions. Most of the best ICO to invest, like Cryptoxygen, come with a smart contract.
Why are smart contracts important?
The use of ERC20 token standard allows all tokens to execute the protocol function using the same approach. This has led to the possibility of creating a system for a token exchange comprising of as many tokens as possible. Wallets supporting Ether can support all ERC20-compliant ICO tokens.
The security and execution of ICO tokens are managed by the embedded ERC20 smart contracts that distribute them on the Ethereum network.
What are the important aspects of ERC20 tokens?
In order to comprehend ERC20, it is important to understand the Ethereum blockchain in the first place. The Ethereum system creates programmable money and since ERC20 tokens are developed on Ethereum platform, they are also programmable tokens.
ERC20 tokens have become extremely important for the ICO industry. The main aspects of these tokens are:
- From a technical point of view, they can be accepted by most exchanges quickly.
- Most Ether wallets are enabled to automatically store any new tokens that are created.
- Users can be sure of seamless transactions by using ERC20 tokens.
What are the benefits of ERC20 tokens?
One of the notable advantages of ERC20 token standard is that the newly launched tokens can work independently, without interfering with other projects on the network. Reason being, the new tokens and the projects already on the network are made to be compatible. The new tokens only need to comply with ERC20 standard rules. Although not compulsory, most developers on the Ethereum network comply with these rules, thus most ICOs launched on the network are ERC20-compliant.
As all tokens follow the same standard, the risk of tokenization is reduced. It also adds uniformity to the network, simplifies token interaction, and improves token liquidity.
ERC20 token helps an ICO to trade on an exchange without the need to create communication between the developers on the exchange and the ICO.
How to buy one of these ERC20 tokens?
You can get these tokens on an exchange or a token sale platform, in exchange for other cryptocurrencies and fiat money. For example, Cryptoxygen allows you to buy its ERC20 based OXY2 token using Ethereum or even your credit card. All you need to do it visit Cryptoxygen exchange website, participate in token sale, and you can get your required OXY2 tokens. It’s as easy as pie!