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What is the ERC-20 token and standard?

In today's cryptocurrency world, we come across a lot of acronyms and terms that may confuse newcomers. Most of these confusing acronyms are combinations of letters and numbers and are easy to understand if you already have the background. For example, you may have encountered the concept of the ERC-20 token or the ERC-20 transmission network while spending time in the crypto market. In this article, we will review and fully explain these concepts. Stay tuned with us.

What is the ERC-20 token and standard?
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What is the ERC-20 network?

First we need to know what ERC is. The term stands for "Ethereum Request for Comment" and the number 20 indicates a specific identifier for the ERC protocol.

The ERC-20 standard is a protocol consisting of a set of rules designed to improve the Ethereum blockchain. Tokens and projects that are intended to be executed on the blockchain using the same smart contracts (same as ERC-20 tokens) must follow these rules. Definitely, following these rules is essential to increase network stability and cohesion. Then, after following these rules and making tokens, they can have an initial coin offering (ICO) and raising capital.

Companies may want to build their own blockchain, so they can raise and sell ERC-20 tokens by the time the blockchain is built. These tokens can be stored and transferred in all Ethereum wallets.

Developers on the Ethereum network, the first platform to cover smart contracts, have already produced more than 10,000 ERC20 tokens, and the number of tokens created on this platform is growing by the day.

erc20 token

What is an ERC-20 token?

According to the published statistics on CoinMarketCap, Ethereum blockchain is the most popular token-building network. There are a variety of smart contracts in this network, and the technology used in it is more advanced than the Bitcoin blockchain, also all the tokens that are created using theEthereum blockchain platform are called ERC-20 tokens.

One of the main advantages of ERC20 is that it is compatible with other new tokens, and new tokens are designed to follow ERC20 rules. Therefore, developers don't need to create a new token blockchain.

How does the ERC-20 standard work?

The ERC-20 network defines six different features for designed tokens in the Ethereum system. These features will determine how the tokens are transferred and how users will be able to access them. ERC-20 also specifies two different signals that each token must follow them in order to be compatible with other tokens. Therefore, virtually all Ethereum-supported wallets also support ERC20-compliant tokens.

6 main functions of ERC-20

  • Total Supply
  • BalanceOf
  • Approve
  • Transfer
  • Transfer From
  • Allowance

In addition to the main functions, there are three other functions that are completely optional to use in ERC20, which are:

  • Token Name
  • Symbol
  • Decimals

erc20 token

Advantages of ERC-20 token standard

The first advantage is the structure of these tokens. We have already mentioned that the created tokens in this platform are required to comply with the rules of this network, so by providing this standard, problems such as storing tokens in wallets, listing tokens in cryptocurrency exchanges, token exchanges, etc. are prevented. In fact, the advantage of these tokens is the simplicity of listing in exchange offices for buying and selling, communication with smart contracts and compatibility with different wallets.

Building an ERC20 token on the Ethereum blockchain platform has made it much easier for developers to design and build a token from scratch.

Another advantage of this group is their liquidity percentage. In case of continuous activity of projects in the network and their continuous exchanges, the projects and consequently the network users and the circulation of tokens will increase and as a result the percentage of liquidity in the network will increase.

What are the disadvantages and limitations of the ERC20 standard and network?

The first bug of ERC-20 tokens is their transmission defect. The Ethereum network includes two types of accounts; External accounts or EOAs which are controlled by private keys and contract accounts controlled by the codes of that contract. If you want to connect to an EOA account, you can use the transfer function to transfer your desired token. But if you plan to connect and send tokens to contract accounts using the transfer function, you will encounter a bug that has led to the loss of millions of dollars in this network up to now.

The main problem with this function is that no information will be given to the recipient after execution, even if the transaction is successful. For example, if a token is sent to the wrong address, the transaction will not be returned and the tokens will be lost due to the recipient not being notified of the token. To solve this defect, Ethereum has introduced a new standard called ERC223.

Another major criticism of tokens and the ERC20 standard is the ease of creating custom tokens. As a result, it is profitable for many people to make tokens in order to defraud. Consequently, the cryptocurrency market is filled with useless tokens and counterfeit initials.

The ERC20 standard does not impose a limit on batchOverflow. This problem causes more money to be spent than the balance of an account. Hackers can misuse this problem to obtain large amounts of tokens.

The batchOverflow software problem is another problem: there is no limit in this standard. This problem in a token can lead to spending more money than the inventory of an address. In April 2018, due to this software bug, some exchange offices temporarily closed the possibility of withdrawing and depositing a number of ERC20 tokens. Because hackers were able to use this problem to obtain large amounts of tokens.

Best wallets of ERC-20 tokens

After getting acquainted with the ERC20 network, you should choose a suitable cryptocurrency wallet to buy and maintain this token. Consider the following to choose the best wallet:

  •  Easy and convenient to use
  •  Secure password and proper privacy
  • Convenient support and recovery capabilities
  • Compatibility with a variety of operating systems

The most popular and well-known wallets for the ERC20 network include the following:

  • Atomic Wallet
  • Ledger Nano X
  • Trust Wallet
  • MetaMask Wallet

Final thoughts

In this article, we reviewed the tokens and the ERC20 network standard and how they work. We found that the ERC20 standard contains a set of rules and functions. tokens that intend to use this network must follow those rules. But this standard has made it much easier for everyone to make tokens, and it has been criticized. Currently, the number of standard networks is increasing every day, and in each of them, an attempt has been made to correct the problems of the previous types.





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