What You Need To Know About Ethereum-Based ERC20 Tokens

In its simplest form, ERC20 is the standard protocol that govern Ethereum-based tokens. This class of tokens is fast becoming one of the major drivers in the crypto world and blockchain technology at large.

The implementation of this protocol has increased the creation of Distributed Applications (DApps).  With the help of the protocol, developers have been able to tokenize their platforms, and issue ICOs.

ERC20 Protocol Explained

The ERC in the subject matter stands for Ethereum Request for Comments and 20 is the special identification number assigned to the protocol. Just like the HTTP protocol is the standard for the internet, the ERC20 is the standard protocol guiding the issuance of tokens in the Ethereum network.

What the protocol does is to outline a set of commands (conditions) that allows the creation of tokens on the Ethereum network. In simple terms, when a token adheres to the command governing the ERC20 standard protocol, it automatically becomes an ERC20 token.

Ether (ETH) is the native token of the ethereum blockchain. However ERC20 token also functions as a coin on the blockchain. Ethereum is the blockchain that runs the transactions done using the ERC20 token as well as its accompanying smart contracts.

Therefore, tokens that do not conform to the ERC20 standard protocol cannot perform functions like trading on the Ethereum network

Implementing the ERC20 Protocol

Before the emergence of the ERC20 token, developers that wanted to create DApps on the ethereum network had no standard function to use for token creation. Therefore, the ethereum network had to always tweak its network to accommodate the inclusion of new DApps on the platform. This led to the following challenges:

  • Users had to know individual token functionalities before they can use it.
  • It became difficult to create a user-friendly interface for managing tokens.

However, the creation of the ERC20 standard protocol led to the following solutions:

  • A set of function for tokens was introduced.
  • Universal names were given to all the functions introduced, the conditions that govern them, the result of each function and the response they get from the token.

Therefore, all the tokens created by developers on the ethereum network adapt to the network easily, and users could operate the different functionalities of each token without difficulties.

Advantages of the ERC20 Standard Protocol

Uniformity across Tokens

The introduction of the ERC20 standard protocol that governs the ERC20 tokens made the creation of innovative blockchain platforms easy.

Listing on Exchanges.

The implementation of the ERC20 standard made the listing of created tokens on crypto exchanges very simple. Since all the tokens carry the same functions, crypto exchanges platforms do not need to tweak their network to accommodate new tokens for trading.

ERC20 Tokens vs Standalone Tokens

Standalone tokens like bitcoin, and litecoin, are hosted on their unique network while tokens based on the ERC20 standard can only be hosted on the Ethereum network. Some of the popular ERC20 tokens include EOS, Tron (TRX) and Binance Coin (BNB).

The continuous influx of ERC20 token into the blockchain ecosystem and the ease of tokenization that it affords mainstream systems currently play a key role in the global blockchain adoption and implementation processes. Therefore one could easily expect an ERC20 dominated token market in the near future as blockchain continues to chart its course into the mainstream.


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