Ethereum is a decentralized computing platform with its own native programming language, enabling developers to build decentralized applications through the use of smart contracts. The platform also has its own native cryptocurrency called Ether.
WHAT ARE SMART CONTRACTS?
Usually, when we refer to contracts, we often imagine two individuals meeting to sign a physical document that contains a binding agreement both must follow. Along with this, an intermediary must be present to make sure that both parties follow the terms of the agreement.
On the other hand, a smart contract eliminates the need for a third party by writing the terms and conditions of the agreement in lines of code. Similar to a computer program, smart contracts self-execute in a blockchain network once all conditions are met. Once the contract is executed, it becomes traceable and irreversible in the blockchain. Ethereum is specifically designed to be a platform to run these smart contracts.
What are Decentralized Applications?
Decentralized applications or Dapps, are applications specifically built on top of decentralized blockchain networks like Ethereum. They are basically an interface that interacts with the blockchain through the use of smart contracts. Multiple smart contracts can be combined to allow decentralized applications to have more complex functions.
What is ERC-20?
In order to create your own token, developers can write a smart contract on the Ethereum network that handles the transaction of the token and keeps track of the balances for each token holder. As a result, these tokens don't operate on their own blockchain but use the Ethereum blockchain instead.
However, because blockchains are immutable, writing smart contracts to create tokens can be quite risky since the terms of the contract can be nearly impossible to change once it is coded in.
For example, there could be a bug in your contract that could cause people to lose their funds but you wouldn't be able to rewrite the code to fix it. This is why developers created the ERC-20 standard with 3 optional functions and 6 mandatory functions, as a way to prevent errors and improve compatibility. Prior to the ERC-20 standard, wallets and exchanges had to write custom code to support each new token created on the Ethereum network.
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.
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