What are ERC20 Tokens
ERC20 tokens are fungible tokens on the Ethereum network. Introduced in late 2015, the ERC20 token standard outlines a set of rules and guidelines that developers must follow when creating tokens on the Ethereum blockchain. This standard has become one of the most widely adopted token standards in the cryptocurrency space, facilitating interoperability between various decentralized applications and services built atop the Ethereum blockchain.
ERC20 tokens are fungible, meaning that each unit is identical and interchangeable with another, making them perfectly suited for a wide range of applications, including store of value, means of exchange, stablecoins, utility tokens, governance tokens, and so much more. The term "ERC" stands for Ethereum Request for Comments, and the number "20" denotes the specific proposal number.
How do ERC20 Tokens work?
ERC20 tokens are created and managed through smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. The ERC20 token standard defines a set of rules that these smart contracts must adhere to, enabling interoperability and compatibility with other ERC20 tokens.
When a developer creates an ERC20 token, they deploy a smart contract that includes the token's total supply, name, symbol, and decimal precision (the number of digits that a token's value can be divided into). To successfully create an ERC20 token, the smart contract must contain six mandatory functions, including
transfer and approve. These functions ensure that tokens can be sent and received, and enable users to allow third-party spending, facilitating seamless interaction with smart contracts.Developers may choose to define optional functions, such as
mint and burn. The mint function allows a user to mint (create) new tokens, increasing the total supply. It's often used in tokens with a dynamic supply or in applications where new tokens need to be created. The burn function allows a user to burn (destroy) a certain amount of tokens, reducing the total supply. It's commonly used in tokens with a limited supply or in applications where tokens need to be removed from circulation.Once the smart contract is deployed, users can interact with it to create, transfer, and manage tokens. For example, a user can send Ether (ETH) to the smart contract to mint new tokens, or they can use the transfer function to send tokens to another user. The smart contract maintains a record of all token balances and transactions, ensuring that the token supply remains consistent and that all transactions are transparent and verifiable on the Ethereum blockchain.
What are some of the most popular ERC20 Tokens?
Tether (USDT) is a popular stablecoin that is pegged to the value of the US dollar. It's widely used for trading and is one of the most widely-held ERC20 tokens.
Shiba Inu (SHIB) is a popular meme coin that evolved into its own ecosystem, featuring a DAO, a decentralized exchange, Web3 games, and multiple NFT collections.
Chainlink (LINK) is the native token of a decentralized oracle network that enables smart contracts on blockchains to securely connect with real-world data, external APIs, and payment systems.
Uniswap (UNI) is the governance token of Uniswap, the largest decentralized exchange on the Ethereum network.
Maker (MKR) is the governance token of the MakerDAO and Maker Protocol. Maker Protocol allows users to lock up collateral and mint DAI, a stable, asset-backed currency pegged to the US dollar.
