ERC-20 Token Standard simply explained

Those who deal with crypto currencies and ICOs will often come across the terms token and ERC-20. Especially in connection with Ethereum. But what exactly do these terms mean and what do you need them for? The following article should bring light into the darkness and clear up possible misunderstandings.

ERC-20 Token – What do these terms mean?

First the term Token has to be explained in more detail. Ethereum is based on the use of tokens that users can buy, sell or trade. These should not be confused with ether, which is the natural currency of the Ethereum block chain. Tokens are digital assets or utilities based on the block chain. They can be assigned a certain value. These values can be very different, such as promissory bills, services or even real objects. So, strictly speaking, they are not a crypto currency. Tokens are smart contracts, which in the case of ERC-20, are executed on the Ethereum block chain.

The most widely used token standard is called ERC-20. Ethereum first issued technical specifications for a token on its block chain in 2015. ERC stands for “Ethereum Request for Comments”. The number 20 stands for the unique identification number that was once given to this standard to distinguish it from others. So ERC-20 is a standard protocol that defines the rules and the operation of a token on the Ethereum block chain.

What is the function of ERC-20 and what is it used for?

The ERC-20 defines a list of rules for all tokens based on this standard. This makes it easier for developers to create new tokens without having to start from scratch every time. The rules defined by the Ethereum team provide enough freedom to give developers the flexibility they need to design the token.

The token standard consists of 6 functions and 2 events. It was created to enable interoperability between applications, exchange nodes and interfaces. The functions describe how tokens can be transferred and how token-related data can be accessed. The events, on the other hand, contain formatting guidelines for transfers and approvals. Ethereum’s Smart Contracts, including all token contracts, are written in the Solidity programming language.

The advantages of the ERC-20 Token System at a glance:

  • Uniform and fast transactions
  • More efficient transaction confirmations
  • Reduces the risk of breach of contract
  • The function implemented in ERC-20 helps the web client to interact with other tokens and the block chain more
  • efficiently and faster

Who uses the ERC-20? Our token list

The website Etherscan documents the number of Ethereum Tokens based on the ERC-20 standard. As a result, there are currently 67985 ERC-20 Token Contracts in total.

Some of the best known and largest tokens by market capitalization are:

  • EOS
  • Tronix
  • VeChain
  • NBB
  • OmiseGo
  • ICON
  • Golem
  • Veritaseum
  • Nebulas
  • Bancor
  • Storj

The list is long and growing continuously. The token standard was introduced mainly due to the increased interest in ICOs. The main advantage is the interoperability with other compliant tokens and decentralized applications on Ethereum. This means that they can be traded on all platforms that support Ethereum standards.

ERC-20 Wallet – The best solutions

We can recommend 5 Ethereum Wallets which also support ERC-20 tokens:

  • Trust – The app is available for Android and iOS
  • Parity – The Desktop Client for Mac OS, Windows and Linux
  • Mist – Standard wallet from Ethereum
  • Metamask – Very good web solution for Ethereum and ERC-20 tokens
  • Trezor – good hardware wallet + MyEtherWallet

Are there other ERC token standards?

The ERC20 also has one or two weaknesses. In some situations the system can cause difficulties. For example, if a token is used to send ether to another smart contract that is not compatible, the transaction is not rejected because the incoming transaction is not recognized. The ethers sent are in limbo and are basically lost to the user. According to the latest documented status as of 31.12.2017, tokens worth approximately US$3.33 million were sent in this way.

For this reason, new standards have been developed. One of them is the ERC223 token standard. It solves the problem by rejecting non-compatible transactions. Another standard is the ERC721. It differs from ERC-20 because it is not fungible. This allows to create tokens or assets that are unique and not arbitrarily interchangeable. This is important for example for in-game assets or for platforms like cryptokitties or cryptopokemons.