An ERC-20 token is just a representation of something on the Ethereum network. Tokens could be game points, currency, or even lottery tickets.
ERC-20 tokens are one of the most unique aspects of Ethereum’s platform. They allow multiple different currencies and applications to be used on the same network. This is different from Bitcoin, where the network only supports one use case. For example, you can swap one cryptocurrency for another on the Ethereum network, but on the Bitcoin network you can only trade Bitcoin.
This is possible because of ERC-20 tokens.
Creating ERC-20 tokens requires technical skill in computer programming. But anyone can understand and appreciate their broad importance to cryptocurrency and blockchain networks.
To create an ERC-20 token, a smart contract is required.
How it Works
ERC-20 tokens are created through smart contracts.
A smart contract is just a computer program that automatically executes rules without requiring human intervention. The classic example of a smart contract is a vending machine. A vending machine is programmed to give a customer their goods onlywhen they pay the machine and select an item. The machine doesn’t need a human vendor to operate successfully. The proper actions are built into the machine.
Smart contracts are created by using a programming language called Solidity. Solidity lets developers create programs that follow their rules automatically, just like a vending machine. Every smart contract follows a standard called the ERC-20 standard. This standard is one group of rules that every smart contract has to follow. ERC-20 tokens all use the same basic system.
The current standards are:
Any ERC-20 token must be finite in supply
Any ERC-20 token must show a balance in the owner’s account
Any ERC-20 token must be transferable from one account to another
Any ERC-20 token must be returnable from a spender to an owner
Any ERC-20 token must allow a spender to withdraw tokens from their account.
So in order to create an ERC-20 token, one has to:
Create a smart contract
Include the ERC-20 standards in the contract
Smart contracts make it possible to exchange different tokens on the network. This is why the Ethereum network currently supports over 15,000 different cryptocurrencies that can all be traded with each other.
How You Can Benefit
ERC-20 tokens make your life in cryptocurrency much easier.
Ethereum supports thousands of mutually exchangeable tokens, which means that you can manage all of your activity on the same platform. It would be quite inconvenient to have to switch platforms everytime you wanted to use a different currency. Imagine having to switch music platforms every time you wanted to listen to a different song! ERC-20 tokens allowed Ethereum to become kind of like the first iTunes of cryptocurrency: A single platform where you have access to everything.
The creation of ERC-20 tokens also helps maintain cryptocurrency’s reputation for security. Since Ethereum is so established, they have very robust and safe security features for their smart contracts. This makes them an optimal.
To summarize, ERC-20 tokens are created through smart contracts that enforce them all to follow certain rules. These mutually shared rules give tokens the freedom to be traded with one another, making Ethereum a dynamic and powerful platform.
Without this freedom, you would have to trudge through many apps and services if you wanted to trade multiple currencies or use more than one decentralized app.
ERC-20 tokens can be made by you, but they are always made for you.