What is the ERC-20 token, and how does it function on the Ethereum network?

The world of cryptocurrency is constantly evolving, with Bitcoin and Ethereum disrupting the market at every stage. Their fast growth has contributed to the rising popularity of the other upcoming tokens and cryptocurrencies. 

Anyone who is involved in the cryptocurrency market will be aware of the different types of tokens and upcoming cryptocurrencies. One such token that is becoming extremely popular within a short time is the ERC-20 token. This article is your guide to understanding what ERC-20 tokens are and how they function on the Ethereum network. 

What is an ERC-20 token?

ERC-20 tokens refer to the technical standard for fungible tokens created using the Ethereum blockchain. A fungible token can be exchanged with any other token, while ERC-721 tokens are non-fungible and can’t be exchanged with others. 

ERC-20 tokens help developers create smart-contract–enabled tokens that can be used in different products and services. The use of ERC-20 tokens is also important for representing ownership, assets, rights, access, and anything that is not unique but can be transferred. 

When did the ERC-20 token come into being?

Smart contracts started gaining popularity around 2015, but they had several issues that needed to be addressed properly. One of the major issues of the use of these smart contracts was that anyone could make the token, but they were not always exchangeable or transferrable. Therefore, there was an increasing demand to standardize the process of token methodology. 

In order to solve this problem, Fabian Vogelstellar proposed in 2015 the idea of ERC-20 tokens on the Ethereum network. The request for the same was submitted by Vogelstellar on the GitHub page as a part of the Ethereum Request Comment. Since the idea was mentioned in the 20th comment, the token was eventually named the ERC-20 token. 

The Ethereum developer community looked into the idea and eventually, the idea got approved in 2017 as a part of the Ethereum Improvement Proposal 20 (EIP-20). Since it was first named to be ERC-20, it came to be known by the same name. 

Since it was approved and implemented, all the smart contracts on the Ethereum network must abide by the same. Therefore, the developers need to look into the interchangeability of the same while advertising their particular ERC-20 compliance. 

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How Does ERC-20 Work on the Ethereum Network?

ERC-20 defines a particular set of rules and functions that all the tokens on the Ethereum platform must adhere to. This helps in determining the compatibility and also interoperability of the tokens with different applications, crypto exchanges, smart contracts, and wallets available in the Ethereum ecosystem. 

What are the functions of ERC-20?

The ERC-20 token lists several functions and events so that they can be implemented into the token, which will further be considered ERC-20 compliant. These are known as methods in ERC and help in describing the elements that can be considered to be smart-contract-enabled tokens. The events, on the other hand, describe a list of actions. 

Some of the major functions of the tokens are as follows:

• TotalSupply: This function helps in determining the number of tokens that will be issued.
• Balance: It helps to understand the balance that the account owner must have.
• Transfer: A transfer is usually automatically executed if there is only a specific number of tokens for a specified address using that particular token.
• TransferFrom: This is very similar to the Transfer function. However, the only condition is that it determines the specified address from which the tokens are to be automatically executed using the tokens.
• Approve: The spender will have to withdraw a particular set of tokens from the particular account. However, they will be eligible to draw only a particular number of tokens.
• Allowance: This function is responsible for returning the specific set of tokens from the spender to the owner.

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The ERC-20 token, while functioning on the Ethereum network, also specifies a wide range of events. These include:

• Transfer: The triggered event must be transferred successfully.
• Approval: There must be a log for the approved event.

There are certain functions, however, which may not be required but often play a role in boosting the usability of the token. These include the following:

• Name of the token
• Symbol of the token
• Decimal points that are to be used in a token

The use of respective functions will play an important role in providing a basic structure to all tokens for easy access, recognition, review and usage. As a result, it contributes to reducing confusion for the application developers, as every smart contract token will have different information in it.  

Bottom Line

It is important to follow the standard guidelines for the ERC-20 token for it to be compatible with the Ethereum blockchain network. The price of ERC-20 fluctuates often, usually slipping between 1-2%. Furthermore, it is important to note that, as of 2024, the maximum supply available for ERC-20 is around 13.00B.

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