What is an ERC-20 token?

Ethereum’s open source platform and smart contract functionality opened a world of opportunities for software developers. Organisations now have the ability to leverage the Ethereum blockchain network to issue their own cryptocurrency, company shares, loyalty points and much more. The success of the platform brought a wealth of developers onto the network so Ethereum developers created a standard protocol for issuing tokens (cryptocurrency) – ERC-20.

An ERC-20 token is a cryptocurrency built on the Ethereum blockchain network, developed within a standard set of rules created by the Ethereum community.

Smart contracts are self-executable codes that operate within the Ethereum network. This means in theory, anyone with the technical ability can leverage the Ethereum blockchain network and create their custom smart contracts.

ERC-20 tokens are created using Ethereum’s smart contract. These tokens proved useful for companies seeking blockchain adoption as it fueled their decentralised applications (DApps).

Think of online games where you can buy a virtual currency or credits with real world currency. Similarly, when you send Ether to the smart contract it will give you tokens in return. You can then store or spend the ERC-20 tokens depending on their function.

Smart contracts can issue new tokens, handle transactions and keep a record of transactions.

ERC-20 standards

ERC-20 tokens are tokens that exist on the Ethereum platform and follow Ethereum’s universal protocol for token development.

There are 3 optional standards to follow while creating an ERC-20 token:

  • Token Name - Specifies the name of your token.
  • Token Symbol - Gives a symbol to your token.
  • Decimal (up to 18) - Determines the divisibility of your token.
Token on Ethereum blockhain
erc-20 token

Why an ERC-20 token?

The Ethereum blockchain allows you to easily create your own cryptocurrency without having to develop an entirely new blockchain network.

Many decentralised applications are leveraging the Ethereum network to create their ERC-20 tokens and fund their venture.

ERC-20 tokens created the boom of ICO’s. An ICO allows organisations to offer their tokens, often speculatively, to generate funds to launch new concepts, grow their business’ and much more. This is a major development in the decentralised blockchain universe.