1. What is an ERC-20 Token? Your Universal Key in the Ethereum Universe
Think of ERC-20 as a kind of magical cooking recipe. Each of the chefs, in this case developers, who want to create a new token on the Ethereum network must use this recipe. This was proposed by Fabian Vogelsteller and Vitalik Buterin in 2015.
ERC-20 stands for Ethereum Request Comment 20, and it is, according to Coinbase, a set of technical rules that guarantees that all tokens generated under this system behave in the same way. The result is fungible tokens, which means they can be exchanged and divided, like a €100 bill that can be divided into 100 €1 coins.
The marvel of ERC-20 is interoperability, because, thanks to this template, a USTD token, for example, knows exactly how it should function on any platform or wallet that supports the Ethereum network. Imagine that all wallets, applications and platforms handled the same digital jargon.
Before this standard, creating tokens was a complicated journey where everyone had their own rules and caused big headaches. Currently, most of the tokens you see are ERC-20; from Uniswap (UNI) to Chainlink (LINK). This was the standard that brought order to the ecosystem and facilitated the development of new Decentralized Finance (DeFi) and applications in a more functional and expeditious way.
2. Why does ERC-20 matter? More than a standard, a revolution in the form of a template
Before ERC-20, each new project on Ethereum was like a chef trying to invent his own bread recipe, each one using his type of flour, his own brand of yeast and an oven with his quirks… a complete chaos. When ERC-20 arrived, it was as if order appeared and someone said: “Here is the basic bread recipe! You can now make a bread that works in everyone’s bakeries.” This uniformity managed to reduce the risk of errors and generated great user confidence.
It was the spark that gave life to the transformation of Ethereum. Having such a simple template, developers could focus on the pleasant part, which is the creation of great ideas, rather than worrying about the more technical aspect. In this way we have seen projects grow from tokens for DeFi to games.
The ERC-20 generated an amazing network effect, in which, the more it was used, the more value it had for everyone. It was as if everyone suddenly used the same plug and all the appliances worked in all the houses. Amazing!
3. How does an ERC-20 Token work? The 6 Key Functions that Every Token Must Have
ECR-20 is a kind of very exclusive club. For a token to enter, it must know the 6 rules from front to back and back to front, according to the ERC-20 token standard:
- TotalSupply: how many tokens exist in total. The size of the party!
- BalanceOf: allows you to know how much a specific address has. The time for gossip has arrived and here you know how much a friend has!
- Transfer: it’s about moving tokens. You give someone money without intermediaries!
- Approve: you authorize someone to buy for you while you are busy.
- Allowance: this ensures that that person does not spend a single token more because, although trust is good, rules are rules.
- TransferFrom: it is the tool that your friend uses to make the transaction that you have authorized. It is a wallet with permissions and well-calibrated transactions that allow your digital assets to be always safe and under your absolute control.
4. Advantages and Risks of ERC-20: Why It’s Your Best Friend… But Be Careful with Misusing It
ERC-20 has many advantages. It generates a robust ecosystem and an active community of users and developers. It is something like having access to a VIP club where everyone knows each other, everything works wonderfully and the same language is spoken.
Clearly, interoperability is a superpower, because it is possible to move your tokens from one place to another without the need for them to disperse with some unnecessary translation. However, there is also an unpleasant side, and that is that the ERC-20 is a double-edged sword, because just as it allows you to generate incredible tokens, it is also the favorite tool for “junk tokens”, which are the defective or worthless ones.
It is not enough that it has the ERC-20 logo, it is imperative that you are very careful not to succumb to projects that vanish overnight. And there is a very classic risk: a simple typo when sending your tokens can completely ruin them. So, although ERC-20 is your best friend in this life, investigate it well before giving it your money!
5. ERC-20 and Bitnovo: Why We Help You Navigate This Universe Without Getting Lost
ERC-20 can seem like a labyrinth, but with the right guide, it is easy to navigate. Bitnovo is that guide. Instead of overwhelming you with technicalities, we equip you with a simple platform and the information you need to take complete control.
We not only help you buy, but we empower you to understand the reason for your decisions. With Bitnovo, it’s your cryptos, it’s your tokens, it’s your rules. Join thousands of people who are already managing their finances in a new and exciting way. Do you want to start now? Start in 3 minutes with Bitnovo!
6. Quick Glossary: Words to Not Get Lost in Crypto
- Blockchain: it is a secure digital record of transactions, which is also shared by many people.
- Smart Contract: digital agreement that is executed automatically.
- Token: digital asset that lies on a previously existing blockchain.
- Fungible Token: token that is exchanged for another at the same time.
- ERC: protocol that Ethereum developers follow so that their projects are compatible with each other.
- EVM: computer that allows smart contracts and other transactions to function in Ethereum.
- Gas: The fee paid for performing operations in Ethereum.
- Wallet: secure digital tool that allows you to access and control your cryptocurrencies and tokens.
