One of the biggest is that it doesn’t handle non-fungible tokens (NFTs) very well. It also has some issues with token approvals, which can be confusing for users. Despite these limitations, ERC-20 is still the most popular token standard on Ethereum. Many projects launch their own tokens to raise money or to power their platforms.
What is the ERC20 token standard?
These validations also verify the validity of the recipient’s address while safeguarding against potential overflow or underflow conditions to prevent unintended consequences. This architecture ensures that ERC-20 tokens exhibit consistent behavior and interact seamlessly with other Ethereum-based applications and services. These functions facilitate token transfers between Ethereum addresses, balance inquiries, and approval mechanisms for delegated token transfers.
What Is ERC20?
- Now that we’ve explored all the nuances of the ERC-20 token standard, you can tell that it’s more than a technical document.
- Always confirm important product information with the relevant provider and read the relevant disclosure documents and terms and conditions before making a decision.
- With more than 1,000 tokens in circulation, the use cases for ERC-20 continue to expand.
- ERC-20 tokens, on the other hand, are distinct tokens following the ERC-20 standard on the Ethereum network.
Cryptocurrency token standards enable interoperability so that native coins of one blockchain can be transferred to and traded on another. This interoperability facilitates token exchange and transfer across different platforms and services, fostering the development of intricate decentralized systems. Token standards are a category of smart contract parameters, which lay out application-level guidelines about how a smart contract functions on its underlying blockchain. A token standard more specifically addresses parameters like token supply, transaction approval, and accessibility https://ai-robert.com/ of the token’s data. The ERC-20 Ethereum token standard is a blueprint for creating fungible tokens that are compatible with the broader Ethereum network.
While other Ethereum token standards do exist, ERC-20 gives wallets, exchanges, and app developers a simplified entryway into the blockchain ecosystem. It is widely considered to be a catalyst for the huge surge in dApps and Ethereum-based crypto tokens in 2017 and the growth of (DeFi). Market data from June 2020 found that 47 of the top 100 crypto tokens by market capitalization were built using the ERC-20 standard. Decentralized Finance (DeFi) has exploded in popularity, and token standards are a big reason why. They provide the framework for creating and managing the various digital assets that fuel DeFi protocols.
Ensure that your wallet does not only support ERC-20 tokens, but also lists the specific token you intend to receive, especially if you plan on receiving airdrops. In most cases, airdropped tokens are obscure digital assets that are yet to list on exchanges. If this is the case, it is unlikely that exchange wallet addresses would support such tokens. ERC-20 allows developers to create smart-contract-enabled tokens that can be used with other products and services.
This compliance is also necessary for Ethereum to keep the promise of scalability; it ensures compatibility between the many different tokens created using the Ethereum ecosystem. The team behind SHIB created a decentralized exchange, Shibaswap, where users can trade and stake their tokens. There are thousands of ERC-20 tokens, and developers keep creating more regularly. Still, most of them likely aren’t of importance to the average investor or enthusiast. The ERC-20 standard defines six mandatory and three optional functions that each token must feature. As the Ethereum platform grew to become one of the biggest and most used blockchains in the world, so did the need for some sort of standardization.
They’re also used for things like loyalty points, in-game currencies, and even representing real-world assets. Basically, if you need a digital asset that can be easily traded and used in applications, ERC-20 is a good choice. One of the key drivers behind ERC-20’s widespread adoption was its simplicity and versatility. The standard’s straightforward implementation allowed developers to create and deploy tokens relatively quickly, while its flexibility accommodated a wide range of use cases and functionalities. ERC-20 tokens could represent anything from utility tokens powering DApps to asset-backed tokens representing physical or digital assets.
The main purpose of the guidelines behind the ERC20 standard is to promote interoperability between smart contracts. As a consequence, all infrastructure components such as user interfaces, exchanges and wallets can be connected to a contract in a predictable manner. ERC20 is the technical standard behind smart contracts serving for implementation of tokens on the Ethereum blockchain. Since its launch in 2015, Ethereum has become one of the driving forces behind the growth of cryptocurrency. Initial coin offerings (ICOs) have raised billions of dollars in funding for crypto projects from all around the world, and most of these ICOs are based on the Ethereum platform. Buyers contribute ether (ETH) to participate in a crowdfunding sale and in return receive some of the project’s tokens.
Given its role in transparency, accountability, and usability within the ERC-20 token ecosystem, the “balanceOf” function is indispensable. It grants users real-time visibility into token ownership, enabling informed decisions regarding token transfers, transactions, and interactions on the Ethereum blockchain. In the early days of Ethereum, developers faced challenges in standardizing token creation and interaction, leading to fragmentation and inefficiencies within the network.
