What is the ERC20 token?

When starting out with the Ethereum blockchain, understanding the role of tokens for your cryptocurrency trading activities is essential. Whether you’re completely new to this environment or have some experience with Bitcoin and other coins, the ERC20 token should be a focal point of your Ethereum research.

What is the ERC20 token, and when will it be used during your Ethereum-based activities? Here’s all you need to know.

What is the ERC20 token?

ERC20, also known as ERC-20, is a blockchain-based asset found on the Ethereum blockchain and has a similar function to the assets found on Bitcoin and other major blockchains. The token can hold value or be sent and received between users on the Ethereum blockchain via blockchain addresses. The transaction fees are covered by gas.

The ERC20 tokens are a type of smart contract that are native to the Ethereum network and are a subset of general Ethereum tokens. It has, however, become the technical standard of Ethereum tokens as the rules implemented by this token are now used by all others on the blockchain.

There are over 950 ERC20 tokens on the network. Tether (USDT), Chainlink (LINK), and USD Coin (USDC) are just three popular coins that use the ERC20 framework. While alternative tokens like ERC223 and ERC777 have received attention, ERC20 remains the most important token associated with Ethereum.

The token is crucial for developers as it allows them to accurately forecast how other assets will perform in the Ethereum ecosystem. As an investor, or an individual looking to send or receive the token, this means most tokens released through the network are ERC20 compliant.

Crucially, the ERC20 token integrates with various wallets and exchanges, meaning the asset can be exchanged with other cryptocurrencies.

The ERC20 token’s six specialty functions

The ERC20 token is highly regarded due to its six key specialty functions. They are;

• balanceOf - allowing the smart contract to store and return the balance.
• totalSupply - it calculates the return and total amount of the token in circulation.
• Transfer - this is the function that allows the asset to be sent to another user’s wallet.
• transferFrom - an automated transfer or recurring transfer of the asset can be set up.
• Approve - this verifies that the asset can be withdrawn from the sender’s wallet.
• Allowance - it gives the recipient wallet the ability to receive the sent tokens.

ERC20 tokens also include optional fields such as Token Name, Token Symbol, and Number of Decimals.

What is the ERC20 token used for?

ERC20 tokens are digital assets that can be sent and received by crypto users for various purposes (as well as stored), including but not limited to;

• Voting rights - whichever candidate receives the most ERC20 tokens will carry more significant influence into an election.
• Crowdfunding - tokens can be given to investors before the token is officially launched to the public.
• New features - if native tokens cannot complete the desired functionality, developers can create a new one.

If you are using the Ethereum network, ERC20 tokens will play a central role in the ongoing activities. Regardless of what actions you take from your wallet.