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Date: 2024-02-29

What is a ERC20 token?

Apart from bitcoin which is currently the most valuable cryptocurrency to date, in second place there is ethereum. But where bitcoin is primarily used for facilitating payments using a virtual coins, over the blockchain network, ethereum is used for so much more than that. Ethereum operates on the same level as bitcoin, in the sense that the ethereum network is comprised of countless computers (nodes) that are interconnected, and the entire network can be thought of a single entity called "Ethereum Virtual Machine".

However, ethereum differs from other cryptocurrencies because of the use of its smart contracts and they are how things get done on the ethereum network. Smart contracts are used by people in order to complete a certain task, and they are a set of instructions that are written using solidity programming language. The solidity programming language works using the if-this-then-that logic, which in layman's terms means that when the first task is done, perform the next task in the order that has been defined.

The specific sequence in which these orders are executed make it easier to reach the end goal. Every transaction that is performed through the use of smart contracts will be cataloged and updated by the ethereum network. You can relate this back to how bitcoin works because when a transaction is carried out, it is added to the public ledger and waits to be verified by miners on the network, and because it is decentralised it is spread across the entire network. However instead of verifying transactions that consist of bitcoin, transactions on the ethereum network use ether.

All of this is possible by using the ERC20 token that is the foundation of the ethereum network, which allows it to perform specific tasks. The ERC20 standard is the set of functions that the developers on the ethereum network have to use in their own tokens, in order to make them ERC20 compliant. Although the rule to follow the ERC20 standard isn't a necessity, it is encouraged as it ensures that their tokens can be compatible with different wallets and exchanges.

In order for an ERC20 token to be compliant, it needs to have a set of 6 functions that can be noticed and identifiable by any other smart contracts, because they need to be able to communicate with each other so they can perform various tasks. When a tasks is initiated, there are 4 basic activities that are what all ERC20 tokens are needed to perform, which are: Acquire the total token supply, acquire the account balance, transfer the token from one party to another and finally it has to approve the use of the token as a monetary asset.

Many companies and businesses have taken advantage of the ethereum network and its use of smart contracts and ERC20 tokens. It has allowed them to become more efficient in performing certain tasks, but they tasks are only as good as the people that create them, so even though they may appear to be perfect there is still a weakness within them. Overall ERC20 tokens contribute to the integrity of ethereum and its network and are one of the most popular tools that are being used by companies and businesses.

A List of all ERC 20 Tokens

There are over 40,000 ERC 20 tokens found on the ethereum network.

Pros and Cons of building Ethereum

  • Simple, easy, and fast to create an ERC20 token (but you still have to know how to program the token to do what you want).
  • Solid development team that is actively working on new technologies that will continue to improve the stability, security, functionality, and scalability of the Ethereum Blockchain (Casper PoS for example).
  • The development team is currently working on the next token version called ERC223 (and they have said it will be upgradeable from ERC20).
  • You don't need to build, maintain, or develop for your own Blockchain, and can piggy back off Ethereum's.
  • You can save time, money, and effort by syncing your system to Ethereum's Blockchain and letting them manage everything for you.
  • You can launch your ICO faster and get back to business.
  • Ethereum is a centralized Blockchain.
  • Ethereum goes down, it will take your smart contracts down with it.
  • If ETH hard forks, it can have unforeseen consequences on your internal tokens, as they can be lost, hacked, or create a split in your service (See Ethereum Classic).
  • You are giving up your autonomy to Ethereum, which means you have no say in the future development plans of the Blockchain you are using, and if you disagree with the development plans, it's already too late to make a switch without destroying your user data in the process (not to mention the coins they own and count on as a store of value + use on the platform to make it run). (ESP created a poorly designed Blockchain that crashed, so they rebuilt it from scratch and now it's called ESP2).
  • If you want to improve the functionality of your Blockchain, you can't. Instead, you must contribute to the development of Ethereum's Blockchain, which you don't own or control, and never will.
  • When you use Ether, it requires gas to complete transactions, therefore any time a transaction occurs using your token, the fee goes to enriching the Ethereum network, not your own network. At first the gas fees might not feel like much, but as your platform scales in size and user numbers, the gas fees will multiply, and your company will be stuck paying the bill out of your own profit.
  • When you launch an ICO and people see you are using a smart contract token from Ethereum, they might look at you as being lazy, greedy, or lacking the desire to build upon and develop your company's product to make it better over the long-term.
  • Ethereum has competitors and CAN drop back to $8 like it was last year (EOS, WAVES, OMNI)..

If you look at Coinmarketcap's list of the most valuable blockchain assets, you'll find that 16 or the top 20 token are based on Ethereum.