ERC-20 Tokens: Meaning and Functioning Explained in Detail

• ERC-20 is a set of rules and guidelines that all ERC-20 need to follow.
• Most of the Dapps use these tokens to raise funds for their projects.

What are ERC-20 Tokens?

All the tokens based on the Ethereum blockchain and following the ERC-20 standard are called the ERC-20 tokens. To clearly understand what ERC-20 is, we first need to understand what a token is in cryptocurrency and how they are different from blockchains. One must have noticed that most of the tokens are based on the Ethereum blockchain. This is because most of the apps are built on the Ethereum blockchain.

Why were ERC-20 Tokens Formed?

Since every project needs funding to function properly, developers of these decentralised apps launch these tokens. Users who feel that the project can bring revolutionary changes in the crypto world get a way to invest in these projects so that as the project grows, their investment will also produce returns. That’s why decentralised projects on the Ethereum blockchain introduce their own tokens. It not only provides funding for developers to work on the project but also denotes the growth of the project.

The Contents of ERC-20 Tokens

The ERC-20 is basically a list of rules and guidelines. If any token based on Ethereum follows these rules and guidelines, it is called an ERC-20 token.

Let’s understand what these rules and guidelines are. This token has some methods, which are called functions, that must be included in the smart contracts built on Ethereum. Here is a detailed list of some of the functions that must be included in the ERC-20 tokens:

1. Transfer: These tokens can be automatically transferred from a specific address to another specific address with a specific number.

2. Balance: The account formed for these tokens must show the balance of the owners’ account.

3. Total Supply: The developers of these tokens should inform the community about the total supply of the token, whether it is capped at a specific number or unlimited.

Some functions are even kept optional so that the developers can choose them, for example, developers can decide whether the tokens should have a name or not.

They can decide the symbol of the token and the decimal points.

Properties of ERC – 20 tokens

1. Fungible: A very important characteristic of these tokens is that they are fungible. This means that every token is not unique in itself. All are the same. It is like fiat currency. Like all currencies of the same denomination it is also the same. This provides them the ability to be exchanged without any interruption. This is because the code behind each token is the same as the other.

2. Transferable: They can be easily sent from one wallet address to another without any problem. This is because these tokens are listed on various exchanges that provide services to transfer them.

3. Supply: Most of the tokens have a fixed supply. This is because the developers cannot issue more tokens and raise the supply.

4. Gas Fees: It is fees that the Ethereum network charges to process the transactions on the network.

Top ERC-20 Tokens

1. Uniswap: This is a Dapp that allows users to exchange tokens without being dependent on financial institutions. The token name of this project is UNI. It has a maximum supply of 1,000,000,000 UNI.

2. MANA: This token is used by decentraland, which is a metaverse-building platform. Its price is currently fixed at $0.3996, and there is no fixed maximum supply.

3. AAVE: This decentralised lending platform works as a bank for cryptocurrency. The name of its token is AAVE.

Conclusion

ERC-20 tokens are a crucial aspect of the Ethereum blockchain, providing a standardised set of rules and guidelines for tokens. These tokens serve as a means for decentralised apps to raise funds and fuel their growth. With their fungible, transferable, and fixed supply properties, ERC-20 tokens have become the backbone of numerous decentralised projects and platforms in the crypto world.