Taking your first steps into the crypto space can be quite daunting. In this article, we will cover terms such as ERC-20 tokens. They are based on a standard set of rules, which makes them easy to use and transfer between different wallets and exchanges.
The main thing about ERC-20
- The Ethereum blockchain’s widely used smart contract standard is ERC-20. It is a set of guidelines that must be adhered to while creating a contract that controls the specifications and issuance of fresh user tokens.
- This standard has made the process of developing new coins much simpler.
- Different ERC20 token development can be transferred and stored on the same address on the Ethereum network.
- The emergence of the opportunity for any developer to release their digital asset without the need to launch a separate blockchain was a turning point in the history of cryptocurrencies.
What does the abbreviation ERC-20 mean?
- ERC (Ethereum Request for Comments) is the name of the official protocol for making proposals for improving the Ethereum network. “20” is the serial number of the sentence.
How and when did ERC-20 appear?
- In November 2015, the idea to create a common standard for user tokens was initially presented. Developer Fabian Vogelsteller and Ethereum founder Vitalik Buterin wrote it.
- ERC-20 provided guidance for the creation of fungible tokens—identical tokens that can be exchanged for each other.
Although ERC-20 tokens operate within the framework established by the Ethereum team, the framework is quite broad, allowing developers greater flexibility when creating them.
Why was the ERC-20 standard needed?
- Bitcoin set the paradigm for other crypto projects: in order to issue any digital currency, you must first launch a separate blockchain.
- Ethereum broke this rule. With the help of smart contracts, any developer has the opportunity to issue their own token and give it unique useful functions within their application.
However, before the advent of ERC-20, there was a problem of compatibility between different tokens, because each of them had a unique smart contract. In other words, in order for an exchange or wallet to support a token, its creators had to write completely new code each time.
Thus, maintaining a growing number of tokens became increasingly problematic and took too much time. For every token, a uniform protocol was developed in order to address this issue.
ERC-20 has greatly simplified and unified the issuance of tokens within a single network. This standard, along with smart contracts, has become a universal way to create and monetize applications using blockchain. Thus, Ethereum became the first blockchain platform in history.
Which tokens have the ERC-20 standard?
Many popular cryptocurrencies have the ERC-20 standard. It is especially common in the field of decentralized finance (DeFi) and related areas. In addition, ERC-20 is used for governance tokens in popular crypto projects. Here are just some examples:
- Maker (MKR)
- Tether (USDT)
- Chainlink (LINK)
- The Sandbox (SAND)
- The Graph (GRT)
- Uniswap (UNI)
- Axie Infinity (AXS)
- Aave (AAVE)
- ApeCoin (APE)
- Basic Attention Token (BAT)
- Compound (COMP)
- OMG Network (OMG)
- yearn.finance (YFI)
- 1inch (1INCH)
- Enjin Coin (ENJ)
Where to store ERC-20 tokens?
Popular wallets for ERC20 tokens are Metamask, Trust Wallet, Exodus, MyEtherWallet. The interface of some wallets only shows the ETH balance, although the address can also store ERC-20. In this case, you just need to export it to a wallet that fully supports the required asset.
Where can I see the details of the ERC-20 transfer?
Transaction details for any ERC-20 token can be viewed in an Ethereum block explorer such as Etherscan . There, in a separate section , there is on-chain data on all assets of this standard. The token page shows the number of holders, the distribution of tokens for each address, and also provides a link to the smart contract of the asset.
What are the ERC-20 protocol’s primary features?
This standard provides six mandatory and three optional (but recommended) parameters for any smart contract.
Required parameters include:
- The totalSupply function, which is responsible for the total emission of tokens, ensures that new tokens cannot be created once the maximum number is reached.
- The initial number of tokens allotted to a particular address is determined by balance0f. This is usually an address owned by the issuer.
The standard also describes two methods for moving tokens. The transfer function ensures the transfer of tokens to users, and transferFrom is required for asset transactions.
In order to validate the two preceding token-moving techniques, two additional functions are required:
- approve serves to verify that the smart contract, based on the total emission, can distribute tokens;
- allowance is needed to check if there is enough balance to send tokens to another address.
Among the optional parameters are the name of the token and its ticker, as well as defining the maximum number of fractional decimal digits (for example, Bitcoin has eight such digits – 1.00000000 BTC).
You can communicate with any ERC-20 smart contract using a common code base by using a set of very simple to implement parameters.
What are the risks of using ERC-20 tokens?
ERC-20 tokens carry some hazards even with their great efficacy because they are essentially smart contracts.
One of the most famous cases of this kind is the hack of The DAO project, as a result of which investors’ cryptocurrencies worth $50 million were stolen and the consequences of which had to be eliminated using an Ethereum hard fork.
In rare cases, this standard is used by scammers: they deliberately include parameters in the smart contract code of their token, with the help of which they then steal funds from holders or implement a Pump & Dump scheme.
How ERC-20 tokens differ from others
The market for cryptocurrencies now has a vast array of digital currencies. However, a very small percentage of them operate in line with the global norm. Consequently, now that you know what ERC-20 is, traders might be wondering how it differs from other tokens.
The main distinction is that every coin that has been “standardized” is connected to the Ethereum network. Furthermore, because each cryptocurrency has a unique code, they are all delivered through Ethereum operations and follow a specific address structure.
It should be noted that all ERC20 coins cannot be considered fully independent, because they are based on one blockchain, and the tokens rely on its power in the process of their work.
The listed services are convenient because they can be used to send and receive cryptocurrency anywhere and at any time. Previously, it was believed that mobile wallets were less secure than those designed for a computer. But with the development of technology, this can no longer be said – such services fully meet modern security standards.
To get started using your mobile wallet, find the app on Google Play or the App Store. You can also follow the links from their official websites and start downloading from there to your phone. After installing the application, be sure to save your seed phrase in a safe place – this is the main tool from which private keys are generated. Once an attacker gains access to the seed phrase, they can easily gain access to your funds.
Best Wallets for ERC-20 tokens
There are several types of cryptocurrency wallets , and among them there are many options for storing this type of token.
1. Mobile wallets
Wallets are suitable for Android and iOS (many of them have desktop versions):
- Trust Wallet
- Trustee Wallet
- Infinito
- Atomic Wallet
- imToken
- Enjin
- Mathwallet
- Exodus
- Coinomi
- Jaxx
- Freewallet
- Token Pocke
The listed services are convenient because they can be used to send and receive cryptocurrency anywhere and at any time. Previously, it was believed that mobile wallets were less secure than those designed for a computer. But with the development of technology, this can no longer be said – such services fully meet modern security standards.
To get started using your mobile wallet, find the app on Google Play or the App Store. You can also follow the links from their official websites and start downloading from there to your phone. After installing the application, be sure to save your seed phrase in a safe place – this is the main tool from which private keys are generated. Once an attacker gains access to the seed phrase, they can easily gain access to your funds.
2. Desktop wallets
Wallets for laptops and personal computers:
- Atomic Wallet
- SelfKey
- HB Wallet
- Eidoo
A convenient and functional option for storing ERC-20 tokens. In addition to storage, such wallets usually include many additional functions: a built-in exchange or exchanger, purchasing cryptocurrency from a card, charts and analytics, tools for portfolio management, a service for creating paper wallets, a news section, and many others.
To get started, download the installation file from the official website, selecting the option for the desired operating system (pay attention to the system bit depth, now most wallets only support 64-bit operating systems). Install the program, save the seed phrase. You may need to create a password. Also select a location to save the key file – this file should not be lost.
3. Web (online, browser) wallets
Wallets for ERC-20 tokens that can be used directly from the browser (via the website or as an extension):
- Metamask
- MyEtherWallet
- MyCrypto
Browser wallets come in two main types. The first ones work as an extension and are convenient because they can be used to connect to various DeFi protocols. For example, Metamask will allow you to trade on the Uniswap exchange or take advantage of the earning opportunities on Aave by sending transactions directly from your wallet. Another type is wallets, the entire functionality of which is concentrated on a specific website. They are convenient due to their versatility – knowing your login and password, you can log in to them from any device.
Wallets can also be custodial or non-custodial, that is, they may or may not store user keys. Of course, it is better to choose the second option and be responsible for storing your own keys yourself, without trusting anyone with this important task.
4. Hardware wallets
Hardware wallets for ERC-20 tokens:
- Ledger
- Trezor
- KeepKey
- Coolwallet
- Safepal
More reliable storage than hardware wallets has not yet been invented. These are physical devices for storing private keys for cryptocurrency. When the device is disconnected from the computer, it does not have access to the Internet and no hacker can gain control of the keys.
When you need to send a transaction, the hardware wallet needs to be connected to your computer or phone. The operation is carried out either through a special native application (for example, Ledger Live), or through various third-party wallets that support interaction with hardware wallets.
Advantages of ERC-20 tokens
Traders that have previously researched ERC-20 tokens are aware of the rationale behind the currency’ rise in popularity.They have many advantages, including the following:
- Demand: Both the ERC20 standard and its associated coin are in high demand on numerous trading platforms these days.This is due in large part to the versatility of the protocol, which is able to adapt to different exchange operations.
- Flexibility of settings: Developers can activate features like coin freezing and unfreezing, as well as the ability to automatically reload Ethereum for future transactions.
- Low level of fraud: The total quantity of coins guarantees that there aren’t any duplicates in circulation and streamlines the verification process.
- Planning for development: With the help of the ERC-20 standard, developers may complete their job with minimal difficulty by following a clear plan of action.
- Simple to use: Working with ERC-20 currencies is simple.In this instance, smart contracts are written in the JavaScript-like digital language Solidity. Among other things, creators have the ability to code contracts using the Vyper language, which is similar to Python.
- Standardization of coins: In addition to restrictions for purchase and interaction with other cryptocurrencies, Ethereum offers currency features. Users can move tokens into a wallet and start trading right away with ERC.
- Degree of liquidity: More users join the network when Ethereum blockchain-based initiatives are actively underway.In addition, with the advent of ERC-20, it has become much easier to exchange coins.
While ERC-20 may become the most widely used standard among developers globally, it is not without its drawbacks.
Disadvantages of ERC20 tokens
Coins made in accordance with the ERC20 standard are not perfect, even with all the benefits mentioned above. They also have disadvantages.
Large commissions. Every cryptocurrency transaction involves an ERC20 fee, which grows bigger as the amount of activity on the blockchain increases because the coins are solely dependent on the Ethereum network.
- Irreversibility of operations. If the user sent coins to the wrong place, the transaction cannot be reversed. The DAO breach is a notable example of how cryptocurrency that was taken by hackers might be treated similarly.
- Instability. The Ethereum blockchain recently updated to ETH 2.0, switching from a proof-of-work (PoW) to a proof-of-stake (PoS) approach for consensus. Ethereum intends to address scalability concerns; but, this will need a significant length of time, during which the system may become unstable. One feature of using individual coins as payment for smart contracts is that they can be removed.
- Low speed of operations. Transfers and withdrawals of funds are carried out via the blockchain; Create ERC20 token network is under heavy load, all operations slow down. Although a unique solution to this issue is currently being developed, the project’s ultimate completion is still some distance off.
- Mistakes made while transmitting. On this blockchain, accounts come in two varieties. The first is external (EOA), and it is private key controlled. The second is related to contracts and falls under the contract code. Coins from one EOA account can be transferred without difficulty. However, there are still problems in the sending to the contract account, which inevitably results in money losses.
- The bar for admittance is set too low. Critics claim that anyone can develop a cryptocurrency—even if they have no particular objectives in mind. This “loophole” can therefore be utilized to plan fly-by-night token pre-sales and create currency linked to worthless ventures.
Conclusion
ERC-20 Tokens offer an easy way create new cryptocurrencies and assets using existing infrastructure provided by ethereum network thus making life much simpler developers looking launch their next project. It provides many benefits over traditional financial instruments including faster transactions, lower fees, greater security and privacy as well as increased control over your funds.
