To many people, the cryptocurrency world can seem intimidating. While there are many resources available online, first-time crypto investors can get overwhelmed and overloaded with the sheer amount of information that they need to go through.
Don’t get us wrong, with luck on your side you can become fairly successful in cryptocurrency without having expert-level technical knowledge. However, having a basic understanding of the crypto world’s features and properties will definitely help you towards making safe and sound financial decisions. One of the biggest and most relevant concepts in this space is what is known as ERC-20.
WHAT IS ERC-20?
ERC stands for Ethereum Request for Comment and 20 is the number assigned for the proposal. Therefore, we can correctly deduce that ERC-20 runs on the Ethereum blockchain. ERC-20 refers to a technical standard for scripting. It dictates a set of rules and actions that a smart contract or Ethereum token must follow and the steps to be able to implement it. Plenty of Ethereum-based digital currencies use this standard including Chainlink (LINK), USD Coin (USDC), and Wrapped Bitcoin (WBTC).
HOW IS ERC-20 MADE?
When Ethereum was created in 2015, it opened a world of possibilities and opportunities for tokens and smart contracts. Smart contracts are digital contracts written in code that self-execute in a blockchain network. They facilitate transactions between parties ensuring all conditions are met, and eliminating the need for middlemen.
To create any token -- in this case ERC-20 tokens -- in the Ethereum blockchain, you first need a smart contract. The smart contract is responsible for creating the new ERC-20 token, managing transactions of the token, and keeping track of the balances of the token holders.
WHAT IS THE PURPOSE OF ERC-20?
As the number of Ethereum-based tokens grew, exchanges and transactions became more complicated and time-consuming. Each token contract can be completely different from one another so if you want your token to be available on an exchange, the exchange has to write custom code so they can interact with your contract and allow people to trade. The same goes for wallet providers.
This is why the community proposed the standard we now know as ERC-20. The implementation of the ERC-20 standard simplified the use of tokens in the Ethereum blockchain. It’s become the universal language and set of guidelines and functions that Ethereum-based tokens use so they can be bought, sold, traded, and used for other token functions.
Apart from simplifying the use of tokens on the Ethereum blockchain, the standard also took out the guesswork and created a structure for making new tokens. You see, once a smart contract is deployed, it cannot be changed which makes it nearly impossible to cheat or hack. However, this feature also makes smart contracts irreparable when deployed with errors. The ERC-20 standard prevents these errors and improves compatibility so you can more easily make your token available on an exchange and allow for interaction and operability with efficiency.
Think of it this way: Ethereum is like a casino with international clientele using several different currencies. To make things simple, the casino asks each player to use the standard chips so the staff doesn’t have to keep converting different banknotes. Players then will exchange their fiat for tokens, and then they can head to the tables to play.
Disclaimer: The information and publications in this article are not intended to be and do not constitute financial advice, investment advice, trading advice, or any other advice or recommendation offered or endorsed by Coins.
Get your crypto journey started with Coins.ph
Coins.ph is regulated by the Bangko Sentral ng Pilipinas (BSP) and is the first-ever blockchain-based company in Asia to hold both Virtual Currency and Electronic Money Issuer licenses from a central bank.
Sign up for a Coins.ph account now to start trading OR download the Coins.ph app. Once you have verified your account, you can convert PHP into the cryptocurrencies of your choice.
Start trading your favorite Crypto on Coins Pro with fees as low as 0.05%!
Join the Coinmunity
Connect with like-minded crypto enthusiasts! Be the first to learn about our news and campaigns.
Join us on:
- Twitter: https://twitter.com/coinsph
- Discord: https://discord.io/coinscommunity
- Telegram (Announcements): https://t.me/coinsph_announcements
- Telegram (Community): https://t.me/coinsphfilipino
- Instagram: https://www.instagram.com/coinsph/
- Facebook: https://www.facebook.com/coinsph/
- TikTok: https://www.tiktok.com/@coinsph_official
- YouTube: https://www.youtube.com/coinsph
