ERC-20 Token Guide For Beginners

erc-20 token guide
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ERC-20 is one of the most important or significant tokens of Ethereum. Ethereum, the cryptocurrency based on blockchain system is based on the use of tokens. These tokens can be bought, sold, or traded. ERC-20 Token Definition is that ERC-20 is a guide of rules and regulations that help create a blueprint for smart contracts to create tokens. If you want to first understand basics of cryptocurrency, then consult our elaborate cryptocurrency guide. Then, come back to continue with our ERC-20 token guide.

 

What Is ERC-20 Token Standard?

According to our ERC-20 Token Guide, ERC-20 has become the technical standard. Now, on Ethereum blockchain ERC-20 is used for all smart contracts for token implementation.

Many of the cryptocurrencies use the ERC-20 standard. Some of them are Maker (MKR), Basic Attention Token (BAT), Augur (REP), and OmiSego (OMG).

The ERC-20 token is a standard that builds tokens on the Ethereum blockchain. To support any exchange of any token, cryptocurrency exchanges are used to build custom bridges between platforms. Ethereum developer Fabian Vogeslsteller created six rules to sort it out. ERC simply means “Ethereum request for comment”.

ERC-20 token was made to solve the problem of compatibility among coins and improve the network functioning.

 

ERC-20 Token Standard Rules

The ERC-20 Token standard has three optional rules and 6 main rules.

The main rules are:

  • Total supply (total token supply)
  •  Balance of (balance of the owner’s account)
  • Transfer (execute the transfer of a specified number of tokens to a particular address)
  • Transfer From (execute the transfer of a specified number of tokens from a particular address)
  • Approve (allow a spender to withdraw a set number of tokens from a specified account)
  • Allowance (return a set number of tokens from a spender to the owner)

These functions will also trigger two more events, the transfer event (whenever the tokens are transferred) and the approval event (whenever approval is required)

The optional rules are:

  •         Token Name
  •         Symbol
  •         Decimal (up to 18)

 

How Many ERC-20 Tokens Are There?

ERC-20 is the most significant Ethereum token. ERC-20 has emerged as the technical standard. On the Ethereum blockchain, ERC-20 is used for all smart contracts. ERC-20 is used for token implantation. It also provides a set of rules, that all Ethereum based tokens should follow.

ERC-20 is similar to, in many ways to bitcoin, Litecoin, etc. the main difference is ERC-20 tokens are issued on the Ethereum network instead of running on their blockchain.

According to our ERC-20 Token Guide, as of 2019, there are more than 200,000 ERC-20 compatible tokens are there on the Ethereum network. The ERC-20 tokens list is quite enormous.

 

Where Can I Find ERC-20 Tokens?

The ERC-20 tokens are only available on the Ethereum blockchain. To get an ERC-20 token, you have to send it to your Ethereum address.

On the Ethereum blockchain, the tokens can be used safely. You can use any Ethereum address that has been provided to you by your ledger hardware wallet. As a result, ERC-20 tokens are always stored in an Ethereum account.

Ethereum 2.0 is live in December 2020 and because of the activity through ERC20 tokens on ETH blockchain, Weiss places ETH ahead of BTC

 

How Much Does It Cost To Create ERC-20 Tokens?

The cost to create ERC-20 tokens mainly depends on how many tokens do you need for your project.

For ICO project, the number of tokens is between 30 million to 60 million tokens. For this many tokens, you need around $10,000 which come with integrated smart contracts.

The range starts from $2K TO $5K. It depends on the ideas. The cost also depends upon your standards and the scope of the projects.

You must choose a reputed firm for creating an ERC-20 token. Before deciding on an ERC-20 token company for development, you should look into the company’s reviews and reputation.

 

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Do ERC-20 Tokens Use Gas?

Gas in ERC-20 is the transaction fee. It is payable on the Ethereum (“ETH”) network. It is also known as Gwei.

  •         1 Gwei = 0.000000001 ETH
  •         1,000,000,000 Gwei = 1 Wei

Now, that we have cleared a little bit about gas. Then let us answer the question in our ERC-20 Token Guide Yes, ERC-20 tokens use gas. Gas is nothing but the fees that you need to pay. All ERC-20 tokens require a minimum amount of Ethereum (ETH) to be sent. This small amount of ETH is known as “Gas”.

Suppose, you have ERC-20 tokens in a wallet. But you don’t have any ETH in the same wallet. Then, in this case, you will be unable to move your ERC-20 tokens. You need Gas for all ETH transactions and ERC-20 transactions. Usually, people use the standard price of Gas to execute any transaction.

Transactions On ETH Blockchain Classification

For a simple transaction, of sending ETH from one wallet to another the gas limit is 21,000 units of gas. You will get a higher priority if you have chosen a high gas price in the transaction process on the ETH blockchain.

There are three subcategories that you would see when transferring on the ETH network.

  •         Low
  •         Standard
  •         Fast

Depending on the importance of time while conducting a transaction, one can choose the level of Gas. Some products have options where you can set your Gas price.

The Gas has a limit which means “the maximum amount of Gas”, you are willing to spend on a transaction. The amount of Gas depends on the complexity of your transaction.

You can set a Gas limit. By setting a gas limit, you can avoid a situation where there might be an error in smart contracts and the prices keep increasing. If you don’t have enough Gas then the transaction will get canceled.

 

How Does Smart Contract Work In ERC-20 Tokens?

To understand how smart contracts work in ERC-20 tokens, first, we need to understand what smart contracts are in our ERC-20 Guide.

Smart contracts are the most important tools related to blockchain. Smart contracts are like any contract. It lets you exchange property, money, share. Smart contracts can enable the transfer of everything. It includes everything from bitcoin and traditional money to goods transported around the world.

Smart contracts eliminate the middleman. Smart contracts with their advantages are replacing the traditional process. The advantages of smart contracts are total transparency, no miscommunication, efficient performance, no paperwork, backup, trustworthiness, and guaranteed outcomes. Smart contracts are self-executing. All the terms and conditions of the smart contract are made using codes. This code runs on the blockchain.

The Ethereum smart contracts were the first. Let’s get to the very start of smart contracts. Ethereum will get all the credit for developing smart contracts. ERC-20 AND smart contracts can call themselves the best invention of this century.

Ethereum started in 2015. From then till now, there are smart contracts for everything. ERC-20 tokens are contracts that execute the ERC-20 standard. Operations that are handled by these contracts aim at getting the total supply and balance of tokens. They also handle the methods used to transfer these tokens. A smart contract is just the marketing word for the code that we can run on the blockchain. So instead of storing only transactions with the help of smart contracts, we can store logic as well. The combination of logic enables us to create programs and apps. Because of the decentralized nature of these apps, we call them Dapp.

 

How To Buy ERC-20 Tokens?

In our ERC-20 Token Guide, we will tell you how you can buy ERC-20 tokens. You can get these tokens from any exchange. You can get these tokens by selling your bitcoin or Ethereum to one of these tokens. If you are considering fast transactions then investing in a token system could be beneficial.

If you invest in these tokens, some ICOs guarantee positive results.

 

How Do I Sell ERC-20 to USD?

ERC-20 tokens are easy to sell if it’s tradable. We have to keep in mind that tokens from ICO or ERC-20 Tokens Airdrop may not be tradable. They are only tradable if they are listed on the exchanges. According to our ERC-20 Token Guide, here are the steps you should follow to sell your token:

  • Find an exchange that supports the token that you want to sell.
  • You will be required to join the exchange.
  • After that, you need to deposit your token.
  • Then you can trade for ETH/BTC or a fiat currency like USD.

 

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Benefits Of ERC-20 Tokens

In our ERC-20 Token Guide, we have already explained what ERC-20 is. Now let’s get into the benefits of ERC-20. As far as the benefits of ERC-20 go, it’s unlimited, and the possibilities are unlimited.

  • The first benefit is convenience. ERC-20 tokens optimize the use of accounts and make the transactions super easy and convenient. They create an ideal situation for the creation of tokens. When there are so many tokens, you need to be careful about duplication. ERC-20 does not restrict developers from taking risks to come out with a good result.
  • Speed and efficiency are the next benefits that we get from ERC-20. These are very important aspects of any crypto trading. For any crypto user, it is very easy to use. With ERC-20 transactions are fluid. The transactions don’t get stopped even the traffic is very high. Because of this reason, many ICO projects have been launched on this platform.
  • An important benefit of ERC-20 is its liquidity. If the projects on top of Ethereum are active and interacting with one another. Then that is going to bring more projects that will bring more users to the Ethereum network.
  • ERC-20 also reduces the risk of contract breaking.
  •  It interacts with other cryptocurrencies as well.
  •  ERC-20 ensures operation with decentralized applications (Dapps).
  •  ERC-20 is very secure compare to other cryptocurrencies. The 51% attack on small coins by miners is much more difficult for ERC-20 compliant tokens, as tokens must break through the Ethereum network first.

 

Can You Mine ERC-20 Tokens?

According to our ERC-20 Guide, ERC-20 Tokens are not mined. All tokens on the Ethereum blockchain are pre-mined. They can be automatically distributed using a smart contract built on the Ethereum network.

You can mine ETH but you cannot mine tokens. The tokens are n mineable. It is said that tokens are minted when new ones are created. When you launch a contract, developers distribute the supply based on their plans.

This process is done through ICO (Initial Coin Offering), IEO (Initial exchange offering), or STO (Security Exchange Offering).

Investors send Ether to the contract address and in exchange receive new tokens. The money that is been collected is used to fund the development of the project. Users want to be able to use their tokens or sell them for a profit.

 

What Is ERC-20 Token Swap?

The token swap is nothing but trading your token safely and easily with other members in the same environment.

 A simple way to securely swap tokens is to use the technique that powers the Bitcoin lightning network and other decentralized exchanges.

 There are three features related to token swapping.

  • Atomic swap – in this token swap, you trade tokens knowing well that either both parties are going to fail or succeed. So, you have the peace of mind that you don’t have to do the swapping in good faith.
  1. Hashed Time-Lock contract–Hashed Time-Lock Contract uses a hash to lock the tokens into a smart contract. If any of the parties fails to accept the terms of the trade offer, a timeout is used for a refund.
  2. Cross Token Swapping – you can trade a mix of tokens as well. For example, you can trade ERC-20tokens, ERC-721 tokens, or a mix of both.

According to our ERC-20 token Guide tokens can be safely exchanged. We can use the Hashed Time Lock Contracts (HTLCs) for this purpose which serves as a digital escrow service. These contracts remove the need for third-party settlement.

The security of these escrow smart contracts allows for easy and safe exchange. You will always have the peace of mind that you are not going to lose your tokens due to the malicious intent of the other party.

 

ERC-20 Token Standard Alternatives

ERC-20 is a token standard for Ethereum. It is a technical standard that has a set of rules. The best way to understand ERC-20 to think of it as a set of guidelines and functions that every new token should follow. The ERC-20 standard has been the standard-setter in the cryptocurrency world for some time now. ERC-20 has been popular with ICOs and crowdfunding companies. ERC-20 compliant tokens raised approx. $70 million each in ICOs.

With ERC-20 success, the development community believed that ERC-20 is also flawed in many ways. Because of this reason, several alternative token standards have also come into the picture. Each of these new alternatives takes ERC-20as its foundation to some degree.

 

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ERC-721 Token Standard

One of these alternatives is ERC-721. Anon-fungible token (NFT) is used to identify something or someone in a unique way. They are perfect for platforms that offer collectible items, access keys, lottery tickets, numbered seats for concerts and sports matches, etc. This special type of token has unlimited possibilities so a standard was introduced and that standard is ERC-721.

ERC-721 introduced a standard for NFT. This type of token is very unique may be due to its age, rarity, or visual.  That is true, all NFTs have a variable called token Id. So, for any ERC-721 Contract, the pair must be unique. A Dapp has a converter that uses the variable as input and outputs an image like zombies, weapons, or small kitties.

The ERC-721 was started in 2018. It is a Non-Fungible Token Standard. ERC-721 implements an API for tokens within smart contracts. It has functionalities like

  •  Transfer tokens from one account t another
  • To get the current balance of an account
  • Get the owner of a specific token
  • To get the total supply of the available token on the network.
  • To approve that an amount of token from an account can be moved by a third-party account

If any smart contract implements the above-mentioned methods and events then it is an ERC-721 Non-Fungible Token (NFT) contract. Once the deployment is over, they can be responsible for keeping track of the tokens created on Ethereum.

 

ERC-1155 Token Standard

Another alternative that came into the picture and is the most recent in the Ethereum world is ERC-1155. When ERC-20 and ERC-721 tokens required a new smart contract for every new class of tokens, the main concept behind ERC-1155 is that a single smart contract can govern an unlimited number of tokens.

 ERC-1155 is a standard interface for contracts that manage multiple token types. A single deployed contract may include several combinations of fungible tokens, non-fungible tokens, or semi -fungible tokens. ERC-1155 enables multiple tokens sending in one single transaction. This leads to a considerable saving on gas costs and the need to wait for each block in single transfers. The projects that use ERC-1155 can also build atomic swaps. It allows users to exchange one kind of token for another. It provides absolute security from fraud and no middleman involved.

If we compare, while ERC-20 and ERC-1155 are good for narrow use cases whether a single currency or a single class of Non-Fungible Token. The community will benefit from ERC-1155 ability to create new tokens and represent more than one type without duplication.

 

Takeaway – ERC-20 Token Guide

  1. ERC-20 tokens don’t have their blockchain.
  2. They are on the top of the Ethereum Blockchain.
  3. You can store ERC-20 tokens in Ethereum addresses and send them using Ethereum Transactions.
  4. To send ERC-20 tokens, we need to use Ethereum GAS.
  5. We can store the ERC-20 on our hardware wallet using the ETH application.
  6. ERC-721 and ERC-1155 are the ERC-20 token standard alternatives.
  7. ERC-20 swapping is nothing but trading.
  8. The benefits of ERC-20 tokens are that they are fast, secure, convenient, efficient, and liquid.
  9. You cannot mine ERC-20 tokens.
  10. You can easily sell ERC-20 tokens if they are tradable.

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