ERC-20 is a technical standard used on the Ethereum Blockchain for smart contracts. It is an acronym for “Ethereum Request for Comment 20” and was proposed in 2015 by Fabian Vogelsteller.
In cryptocurrency, a token is a digital asset that represents an interest or asset on a blockchain.
BRC-20 stands for Bitcoin Request for Comment, and it’s a token standard that allows developers to create fungible tokens on the Bitcoin blockchain
BEP-20 tokens represent a diverse range of crypto assets that don’t have their own blockchain but reside on top of the Binance Smart Chain (BSC). BEP-20 is a technical standard that emerged to use for all smart contracts on the Binance Smart Chain for token implementations. Here, “EP” stands for ‘Enhancement Proposal’, which, like RCs, are proposals aimed at making the Binance blockchain better.
Crypto tokens are different from digital coins, which are central to their own systems. Crypto tokens are built on the blockchain of another cryptocurrency, while cryptocurrencies are the native asset of a blockchain.
There are several types of crypto tokens, including:
- Utility tokens: Provide access to goods and services on a blockchain
- Security tokens: Backed by physical assets, such as gold or luxury watches
- Mirrored assets: Synthetic versions of assets, such as stocks, that track the price of their core assets
- Non-fungible tokens (NFTs): A mechanism for creating unique, non-replaceable digital objects, such as artwork
- Meme coins: Created for fun, but are deemed to have value due to their popularity
Developers can establish their own tokens on this blockchain by adhering to the ERC-20 standard. This standard facilitates the creation and deployment of tokens by providing a common set of interfaces and functions that can be used by various token contracts. This implies that ERC-20 tokens are interoperable and can be traded on Ethereum-based decentralized exchanges (DEXs).
Polygon is both a cryptocurrency and a token:
- Polygon (MATIC) – An Ethereum token that powers the Polygon Network, a scaling solution for Ethereum. Polygon aims to make transactions on Ethereum faster and cheaper.
- Polygon (POL) The native token for Polygon’s blockchain. POL tokens are used to:
- Govern and secure the Polygon network
- Pay fees for blockchain activities
- Stake according to Polygon’s Proof of Stake algorithm
ERC stands for “Ethereum Request for Comment”
- There are several types of ERC tokens, including:
- ERC-20 The standard for fungible tokens on Ethereum, used for cryptocurrencies, utility tokens, security tokens, and stablecoins
- ERC-721 The first token standard for non-fungible tokens (NFTs), which are unique and indivisible digital assets
- ERC-1155 A newer standard that allows for the creation and management of both fungible and non-fungible tokens in a single contract
- ERC-223 A more efficient token standard than ERC-20, allowing the entire transaction to be completed in a single step
- ERC-998 A standard extension for any non-fungible token to own another non-fungible ERC-721 or standard fungible ERC-20 tokens
- ERC-1400 A toolkit for building tokens that can represent real-world assets, manage their own mini-economies, and interact with other parts of the blockchain ecosystem
The Ethereum Blockchain is a decentralised platform that enables developers to construct and deploy decentralized applications (dApps), smart contracts, and digital tokens. Developers must adhere to the ERC-20 standard in order to establish their own digital tokens on the Ethereum Blockchain.
How Does ERC20 Work?
ERC20 is a standard protocol, not a piece of software or a program. The ERC20 protocol governs the creation of new tokens, ensuring that they conform to the necessary technical requirements. If a token does not adhere to the technical specifications specified by ERC20, it will not meet the definition of an ERC20 token and will not be issued on the network.
ERC20 tokens are typically used in a wide array of applications such as:
Initial Coin Offerings (ICOs): ERC20 tokens have been widely used for ICOs, a form of fundraising for cryptocurrency projects where investors receive tokens in exchange for their investment.
Governance: In decentralized organizations or protocols, ERC20 tokens can represent voting rights, enabling holders to participate in governance decisions.
Decentralised Finance (DeFi): Many DeFi protocols utilize ERC20 tokens as collateral for loans, interest-bearing savings accounts, liquidity provisions, and many other financial services.
Conclusion
The terms “coin” and “token” are often used interchangeably in crypto, but they are not the same. Coins function as a form of money, while tokens can be used for a variety of purposes. A coin is native to its Layer-1 blockchain, whereas tokens are created on top of existing chains.
The ERC-20 token standard has been instrumental in the advancement of blockchain technology and the Ethereum ecosystem. Its user-friendly design, compatibility, and adaptability have facilitated the development of a wide variety of tokens that drive numerous decentralized applications. As the blockchain landscape continues to expand and evolve, the ERC-20 standard will remain a key foundation, influencing not only this network but also other blockchain platforms. Gaining an understanding of ERC-20 tokens is essential for anyone looking to delve into the realms of blockchain and cryptocurrency, as they play a significant role in shaping future finance, gaming, and ownership of digital assets.
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