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The popular crypto and blockchain system Ethereum is based on the usage of tokens which users can trade, buy or sell. Tokens represent a diverse range of digital assets in this system. These assets include IOUs, vouchers, or tangible, real-world objects.
Ethereum tokens are essentially smart contract which uses the Ethereum blockchain. Notably, Ethereum features multiple token standards. Among all the Ethereum tokens, ERC-20 is one of the most significant.
As of 24 March 2022, about 508,074 ERC-20-compatible tokens exist on the leading network of Ethereum.
Here’s more about ERC-20.
Implemented in 2015, ERC-20 is a token standard that the world’s biggest programmable blockchain, Ethereum, uses. The full form of ERC is “Ethereum request for comment”. Every smart contract on the Ethereum blockchain uses ERC-20 to implement the token and offers a set of rules that every Ethereum-based token should follow.
In simpler terms, ERC-20 is a list of basic functions and guidelines that any new token developed on the Ethereum network should follow.
ERC-20 offers a list of coding functions. These functions can be categorised into three types: getters, functions, and events.
Getters return information and do not modify anything. Following are the three getters:
Functions perform an action. Listed below are the three functions:
Events are emitted when an action takes place. Given below are the two events:
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It is a governance and utility token for the Bored Ape Yacht Club NFTs, one of the most successful NFT projects.
Decentraland (MANA) is an Ethereum token that powers the Decentraland virtual reality metaverse platform. You can use MANA to pay for in-world services, goods, and virtual plots of land in Decentraland.
ERC-20 tokens are tradable on crypto exchanges like Binance and Coinbase.
To store Ethereum tokens, you will require a crypto wallet which can store Ethereum tokens – either a hardware wallet or a software wallet like MetaMask.
As crypto investments, ERC-20 tokens come with unique risks and benefits compared to other kinds of tokens.
ERC-20 tokens are based on Ethereum. Hence they provide the same degree of security. Also, they are compatible with the remaining Ethereum ecosystem. That is a significant advantage as Ethereum is the most popular blockchain for DeFi services and dApps.
Again, since they are tied to Ethereum, ERC-20 tokens somewhat rely on their success. In addition, they are subject to the heavy network congestion of Ethereum. This congestion is a common issue which results in expensive gas fees and slow transactions.
There exists a low barrier to entry to developing an ERC-20 token. Now, this can be both good and bad. While it allows many individuals to launch their projects, it leads to more scams.
As the block time is roughly 14 seconds, it can take up to a minute for transactions to process. This can be adequate for some or extremely slow for others.
When transactions occur with ERC-20 tokens, a requirement for the second crypto for transaction fee payment arises. This can add cost and time, leading to dust on various platforms.
High demand for dApps can clog up the Ethereum network. That leads to slowing down the network, and transactions become more costly.
ERC-20 tokens are broadly used, and as long as Ethereum maintains its status, their traction will continue. Also, if there is any threat, it is from new Ethereum standards. They will have to be the fittest to survive in natural selection.
Also, potential investors must note that ERC-20 tokens can witness rapid increases or decreases in value, similar to other cryptos. So, if you are willing to invest, be ready for such volatility.