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What is ERC-20? A Guide to the Ethereum Token Standard

Ethereum blockchain has over five token standards, including ERC-1155, ‎ERC-721, ‎ERC-4626, and ERC-20. All token standards represent rules and requirements that tokens must meet to be considered Ethereum-compatible. For instance, the ERC-721 is a non-fungible token standard, while ERC-20 is a fungible token standard.

The ERC-20 token standard governs the creation and issuing of smart contracts in Ethereum, and the tokens enable crowdfunding, token sales, and the development of decentralized applications (dApps). ERC-20 is among the most important standards in Ethereum, and this article will highlight some things you might need to know about this token standard. Keep reading!

 

What Is Ethereum?

Ethereum is an open-source blockchain network that enables developers to build and deploy smart contracts and dApps. The technology currently has over 53.3M smart contracts, allowing individuals and brands to create and interact with applications without relying on a central authority. 

Unlike traditional systems where a single entity, like a government or a company, controls the data and transactions, Ethereum operates on a distributed network of computers called nodes. These nodes work together to maintain the blockchain, a public ledger containing all the transactions and smart contracts executed on the Ethereum network.

Like other decentralized networks, Ethereum has its native cryptocurrency called Ether (ETH), which serves as a means of exchange within the network. This token is used for paying transaction fees and incentivizing miners to secure the network.

 

What Are Crypto Tokens? Are They the Same as Cryptocurrencies?

While crypto tokens and cryptocurrencies are often used interchangeably, they are different. Cryptocurrencies, like Bitcoin and Ethereum’s native currency Ether, are digital currencies that function as a medium of exchange. They operate on their independent decentralized networks and are used to facilitate transactions and store value. 

On the other hand, crypto tokens are secondary assets built on existing blockchains and utilize the infrastructure and functionality of their parent platform. Unlike cryptocurrencies, crypto tokens have broader applications. They can represent ownership, access, or specific functionalities within dApps, and their value comes from their utility or the underlying assets they represent. 

 

What Is the ERC-20 Standard?

The ERC-20 standard is a guideline for developers to create and deploy tokens on the Ethereum network. ERC-20 (Ethereum Request for Comments #20) defines a set of functions and interfaces that tokens on the Ethereum blockchain should implement to ensure compatibility and smooth interaction with other contracts and applications. 

These functions include transferring tokens between addresses, retrieving account balances, and approving token spending on behalf of another address. It enables developers to create tokens, integrating with various Ethereum wallets, exchanges, and dApps. 

 

How Does the ERC-20 Token Standard Work?

ERC-20 tokens are created as smart contracts, and the functions and specifications outlined in the standard govern their behavior. Here’s an overview of how the ERC-20 standard works:

  • Token Contract: To create an ERC-20 token, a smart contract is deployed on the Ethereum blockchain. The smart contract contains the code that defines the behavior and properties of the token, and it also fosters the creation of smart assets that users can buy.
  • Required Functions and Events: The ERC-20 standard mandates certain functions and events the token contract must implement. These functions and events include methods for transferring tokens between addresses, checking an account’s token balance, and approving token transfers on behalf of another address. 
  • Fungibility: ERC-20 tokens are fungible, meaning each token is interchangeable and holds the same value as any other token of the same type. This property allows for easy divisibility and standardization of token units.
  • Token Metadata: ERC-20 tokens can include additional metadata, such as names, symbols, and decimal places. These details provide information about the token’s identity, representation, and precision.
  • Token Ownership: ERC-20 tokens are associated with Ethereum addresses. Token balances are tracked and recorded within the token contract, which holds the mapping of addresses to corresponding token balances.

In addition, when a transfer occurs, the token contract verifies the sender’s balance, deducts the transferred amount, and updates the balances of the sender and recipient accordingly.

 

What Is Gas?

Every operation on the Ethereum network, including transactions and smart contracts, requires a certain amount of computational resources, which include processing power, memory, and storage space. Gas is the unit of measurement used to calculate the computational efforts required to execute these operations.

Miners are responsible for processing and validating transactions and smart contracts on the Ethereum network. A fee is attached to each transaction and operation to enable miners to allocate resources and perform these tasks. The higher the resources required to complete your request, the more gas it consumes and the higher the fee.

Gas prices are represented in a small unit called Gwei (one billion wei), a fraction of one Ether. The gas fee is calculated by multiplying the gas limit by the gas price per unit. For instance, if the gas limit is 30,000 and the gas price per unit is 300 gwei, after multiplying the values, you should expect to pay 0.0009 ETH for the transaction.

These prices vary depending on the network’s congestion. When there are many pending transactions, the gas price increases as miners prioritize transactions with higher fees. So, if you want your transaction to be processed faster, you can set a higher gas price than required. 

In addition, transactions and operations on dApps built on the Ethereum Virtual machine (EVM)—a decentralized computation software that executes smart contracts and computes the state of the Ethereum network after the chain receives each new block, are also accompanied by gas fees.

 

ERC-20 Token Functions 

To create an ERC-20-compliant token, developers must follow certain functions known as methods on the ERC. These functions describe what must be included in the token, and they include the following;

  • totalSupply(): The totalSupply function determines the number of tokens or money that will ever be distributed on the Ethereum network. This function is only implemented once, and that is during deployment. 
  • balanceOf(): The balaceOf function determines the account balance of the token holder or owner’s account.
  • transfer(): The transfer function enables token transfer on the ethereum network. This function only requires the recipients’ wallet addresses and the number of tokens you want to transfer.
  • transferFrom(): Unlike the transfer function, whose duty is to move tokens from your wallet to another address, the transformForm function provides a secure and safe environment for token transfer. For instance, if you are selling or buying a digital asset, you give the smart contract access to complete the transaction on your behalf when you initiate the transfer.
  • approve(): The approve function allows users to withdraw tokens from their accounts up to a specified amount.
  • allowance(): The allowance function returns a certain amount of tokens from the spender to the owner.

Besides functions, events (actions) must be included for the tokens to be ERC-20 compliant. These events include; transfer and approval. The Transfer is an event triggered after a successful transaction, while Approval displays details of approvals of tokens. They keep track of balance and allowance changes for addresses without constant polling to the network.

 

Advantages Of ERC-20

ERC20 offers many advantages to enterprises and individuals alike. It integrates with other exchanges, dApps, and Web3 wallets like Blade Wallet. Besides that, here are other benefits of ERC-2O;

  • Global Reach: The ERC-20 token standard has gained widespread adoption in the global Ethereum ecosystem. Because they are compatible with many wallets, exchanges, and dApps, providing a vast ecosystem for token holders and developers.
  • Standardization: ERC-20 tokens adhere to a standardized set of rules implemented on the Ethereum blockchain. This standard ensures compatibility and seamless integration with other platforms and wallets supporting ERC-20 tokens.
  • Interoperability:  ERC-20 tokens are supported by various cryptocurrency exchanges, wallets, and decentralized finance (DeFi) platforms. Their standardized nature enables easy integration and compatibility across different applications and services within the Ethereum ecosystem.
  • Security: ERC-20 tokens are relatively secure and free from alteration because they are built and managed using smart contracts. These smart contracts ensure that all transactions are processed and recorded on the blockchain, fostering transparency and reducing the risk of malicious attacks and theft.
  • Ease of Development: The ERC-20 standard provides a clear and well-defined set of rules, making it relatively easy for developers to create tokens. The standardized functions and events simplify the development process and ensure compatibility with existing infrastructure.
  • Liquidity and Marketability: Due to their widespread adoption, ERC-20 tokens benefit from increased liquidity and marketability. They can be listed on various decentralized and centralized exchanges, facilitating trading and enhancing their overall value proposition.
  • Community Support: The ERC-20 standard has a large and active developer community, providing resources, tools, and documentation to support token creators. This community support fosters innovation and collaboration within the Ethereum ecosystem.

Which Wallets for ERC20 Tokens?

While there are many Web3 wallets in the crypto space, Blade Wallet is currently the only unhosted CertiK security-audited, dual-network digital wallet built on the Hedera network. Being a leading wallet for ERC-20 tokens, Blade Wallet boasts Certik audited security, and a direct integration with D’CENT cold storage wallets to help keep users secure. 

Developed by Blade Labs, an industry-leading Unhosted Wallet-as-a-Service provider for enterprises,  Blade Wallet also supports various Hedera Token Service (HTS) tokens and comes with an in-wallet cross-chain swapping feature that allows you to swap your ERC-20 for HTS tokens and vice-versa.

On its enterprise level, Blade Labs offers a white-label solution, allowing developers to integrate Blade Wallet

 

FAQ

1. What Is the Significance of ERC-20 Tokens?

ERC-20 tokens provide a standardized framework, allowing developers to create tokens on the Ethereum blockchain. They also enable the tokenization of assets, support crowdfunding efforts, promote interoperability, and contribute to major growth and innovation within the Ethereum ecosystem.

2. How do ERC-20 Tokens Differ From Other Cryptocurrencies?

ERC-20 tokens are cryptocurrencies that follow a set of standards or rules defined by the Ethereum blockchain. Here’s how ERC-20 tokens differ from other cryptocurrencies and how to use them:

  • Tokenization: ERC-20 tokens represent digital assets or utility within a specific project or dApp. They can represent anything from tradable assets like cryptocurrencies to digital collectibles or access rights to a service.
  • Ethereum Platform: They are built on the Ethereum blockchain, leveraging its underlying technology and infrastructure. They inherit the security, consensus, and smart contract capabilities the Ethereum network provides.

3. How Can I Use ERC-20 Tokens?

To use ERC-20 tokens, you need an Ethereum-compatible wallet such as Blade Wallet, MetaMask, or Trust Wallet. Once you have a wallet, you can receive, store, and send ERC-20 tokens like any other cryptocurrency. Also, you can participate in token sales, contribute to decentralized finance platforms, trade on exchanges, or interact with decentralized applications that utilize ERC-20 tokens.

4. Are All Ethereum Tokens ERC-20 Compliant?

No, not all Ethereum tokens are ERC-20 compliant. While ERC-20 is the most common standard for tokens on the Ethereum blockchain, other token standards exist, such as ERC-721 (used for non-fungible tokens or NFTs).

5. Can I Store ERC-20 Tokens in Any Ethereum Wallet?

Not all wallets are Ethereum-compatible. However, wallets like MetaMask, MyEtherWallet, and Blade Wallet are compatible with ERC-20 tokens and allow users to store, send, and receive them. Using Blade Wallet, you can carry out all Ethereum and Web3-related transactions on the go without leaving the app.

6. Are ERC-20 Tokens the Same as Ether (ETH)?

ERC-20 tokens are not the same as Ether (ETH). Ether is the native cryptocurrency of the Ethereum blockchain and serves as the fuel for executing transactions on the network. On the flip side, ERC-20 tokens are created and implemented as smart contracts on the Ethereum blockchain, representing other assets or utilities within specific projects or dApps.

7. How Do I Buy or Trade ERC-20 Tokens?

You can buy or trade ERC-20 tokens on Blade Wallet or any cryptocurrency exchange listing such tokens. Blade Wallet lets you buy tokens using your fiat currencies through on-ramp payment service providers like MoonPay, Banxa, and OnMeta. You can also trade your ERC-20 tokens for other tokens within the wallet. 

Blade Labs recently launched the first On/Off Ramp Aggregator on Hedera within Blade Wallet. Meaning for transactions users are shown a list of on/off ramp platform options allowing them full autonomy over which provider they use for which transactions.

Download Blade Wallet on your Chrome browser, Android, or iOS, and create an account today to buy, sell, and trade ERC-20 tokens with Blade Wallet.