What Are ERC-20 Tokens? | Find The Real Crypto Tactics Today!

We all hear about ERC 20 tokens, but what are those tokens? And most importantly, what are ERC-20 tokens not? To start with? Let’s quickly go over some of the basics ERC 20 tokens exist on the Ethereum platform. And that in itself consists out of a blockchain that is capable of storing transactions, and a virtual machine that is capable of running smart contracts.

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Tech behind ERC-20:

 It’s important to understand that tokens live on the Ethereum blockchain. They benefit from its technology.

What Are ERC-20 Tokens

They aren’t independent, and they rely on Ethereum is a blockchain and platform, the native currency on the Ethereum network is ether. But besides ether, it can also support other tokens. And these can work like currencies, but they can also represent shares of a company loyalty points, gold certificates, and so on. But we’re running ahead of it.

How A Token Can Be Created?

Let’s first take a look at how tokens come into existence. A token can be created by a smart contract. This contract is not only responsible for creating tokens, but also for managing transactions of the token, and for keeping track of the balance of each token holder.

To get some tokens, you have to send some ether to the smart contract, which will then give you a certain amount of tokens in return. So when you want to create your own token, you write a smart contract that can create tokens, transfer them and keep track of people’s balances.

That sounds pretty easy. But it’s also quite risky. For starters, once the smart contract is deployed, it cannot be changed anymore. So if you made an error, you cannot fix it.

What Are ERC-20 Tokens

And that could be quite catastrophic. Imagine a bug inside your contracts code that causes people to lose their tokens, or a bug that would allow others to steal tokens. And then there is a problem of interoperability. Each token contract can be completely different from the other.

So if you want your tokens will be available on an exchange, the exchange has to write custom code so they can talk to your contract and allow people to trade. The same thing goes for wallet providers. supporting hundreds of tokens will be very complex and very time consuming. So instead, the community proposed the standard called ERC. 20.

Role of Ethereum In ERC-20:

ERC stands for etherium request for comments. And 20 is just a number they assigned to proposal that will create some structure in the wild west of tokens. ERC 20 is a guideline or a standard for when you want to create your own token. It defines six mandatory functions that your smart contract should implement, and three optional ones. To start with. You can optionally give your token a name a symbol, and you can control how the viable your token is.

What Are ERC-20 Tokens

By specifying how many decimals it should support, the mandatory functions are a bit more complex. For starters, you have to create a method that defines the total supply of your token. When this limit is reached, the smart contract will refuse to create new tokens. Next up is the balance off method, which has to return how many tokens a given address has.

And then there are two transfer methods transfer which takes a certain amount of tokens from total supply, and gives them to a user and transfer from which can be used to transfer tokens between any two users who have them.

A Proof And Allowance Method:

Finally, there is the proof and Allowance Method. A proof verifies that your contract can give a certain amount of tokens to user taking into account the total supply and the allowance method is almost the exact same, except that it checks if one user has enough balance to send a certain amount of tokens to someone else.

If you know something about object oriented programming, you can compare ERC 20 to an interface if you want your token to be an ERC 20 token you have to implement the ERC 20 interface and that forces you to implement these six methods.

What Are ERC-20 Tokens

Now before there was the ERC 20 standard everyone who wanted to create a token had to reinvent the wheel. And that meant that each token contract was slightly different. And that exchanges in wallets had to write custom code to support your token with ERC. 20 however, exchanges and wallet providers only have to implement this code once and that’s why exchanges can add new tokens so quickly.

And why wallets like my ether wallet has support for all ERC 20 tokens without having to be updated. So how easy is it to create your own token? While there’s a website called token factory that does it all for you.

You just enter what the total supply for token should be, how you want to call it, how many decimals it should support and what symbol it should have. After entering all this, the website creates a token contract for you and adds it to the Ethereum blockchain. It is super easy and almost effortless.

Hype in ERC Tokens:

So effortless in fact, that the website ether scan has a list of 36,000 known ERC 20 tokens, and it’s estimated that in 2017, over $4 billion dollars was raised by selling tokens in an ICO.

However, these tokens were not always clean, some are really overhyped, and many people got scammed into purchasing tokens that were essentially worthless.

But now we’re getting a bit distracted ERC. 20 is a great standard that has propelled the use of tokens. But ERC 20 itself is not perfect.

┬áIt’s only a guideline, and people are free to implement the required functions however they like. And that has led to some interesting problems.

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Buying ERC-20 Tokens:

For instance, to buy some tokens you have to send some ether to the token contract, but some people tried sending other ERC 20 tokens instead, if the contract was not designed with this in mind, it will result in your tokens being lost.

In fact, it was estimated that by December 2017, well over $3 million have been lost because of this flaw. So to solve this, the community is already working on extending the ERC 20 standard with the ERC 223 standard.

This warns token creators about these risks and offer some workarounds. That was it for this video. I hope you find it interesting. Let me know what you think about ERC 20 tokens

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