In general, Ethereum works on the same principle as Bitcoin and consists of a chain of blocks containing information about the history of all transactions. However, it does differ slightly. The platform has an additional layer, popularly dubbed the Ethereum Virtual Machine (EVM). This layer allows each of us to program a smart contract on the Ethereum platform.
Why did we mention smart contracts? And what do they have to do with ERC 20 tokens? Ethereum Request for Comment, number 20 or ERC-20 for short, is one of the most common standards (set of rules) that developers can use to create tokens that support smart contracts, making them compatible with various products and services. This standard is used to facilitate interoperability between tokens created on the Ethereum platform so that they can be easily created, used and exchanged on the blockchain.
How are ERC-20 Tokens Created
In 2015, German developer Fabian Vogelsteller decided to contribute to the history of Ethereum and left a comment on the project’s Github page. His comment was the 20th in a row, and it was the first time he mentioned ERC-20, which was proposed as a way to solve the network scalability problem as Ethereum continued to grow rapidly.
Fortunately, the development was already approved and implemented 2 years later. Thanks to Fabian, these days smart contracts and tokens on the Ethereum blockchain are compliant with the new ERC-20 standard, and have the ability to interact with other tokens on the network.
What Can ERC-20 Tokens Do
Being fungible, ERC 20 token:
- Can be used as a medium of exchange;
- Gives holders a voice in management and creates opportunities for passive interest income through staking rewards;
- Enables participation in popular applications and activities available on Ethereum. For example, blockchain games or trading non-functional tokens (NFTs);
- May be used to raise funds for a new project;
- Can be used for the purpose of creating a loyalty program for a business, or providing access to a particular service or product.
What are the Advantages of ERC-20 Tokens
Optimized token creation process: No need to start your code from scratch or worry that the tokens created will be incompatible with other tokens or dApps on the Ethereum blockchain.
Increased liquidity: Since 2017, token holders have had access to a wide range of decentralized exchanges and trading pairs. But before that, Ethereum users could not always use tokens in all dApps, meaning trading was not as accessible as it is today.
Tokenization: The ERC20 tokens list allows tokenization of various assets such as real estate and products, opening up new opportunities for fractional ownership and efficient value transfer.
Risks and Challenges of ERC-20 Tokens
Unfortunately, the list of ERC 20 tokens has problems such as: lack of regulation, liquidity risks, phishing and fraud. The low barrier to entry means that scammers, for example, can easily create their own fake projects or websites to trick users into sending their tokens to fraudulent addresses. So be careful to avoid such scams.
TOP ERC 20 tokens
Tokens created using the ERC-20 standard can represent many different virtual assets – both digital currencies and tokens based on real assets. Common types of ERC-20 include management tokens, reward tokens, stablecoins, and memcoins. Here’s a list of the best ERC 20 tokens:
- Ethereum (ETH)
- Tether (UDST)
- USD Coin (USDC)
- Polygon (MATIC)
- Wrapped Bitcoin (WBTC)
- DAI (DAI)
- Uniswap (UNI)
The Future Of ERC-20 Tokens
The future of ERC-20 tokens is dynamic and evolving. Now the developers are making every effort to eliminate the shortcomings of the project and introduce alternative standards for the tokens of the platform. All this in the future is designed to expand functionality, improve security, provide additional features of the ERC-20 standard and create new ERC 20 tokens.
