What is ERC20?
ERC, which represents “Ethereum Request for Comments” is a set of rules and regulations for the Ethereum network and it determines how tokens can be accepted. It was proposed by Fabian Vogelsteller. The 20 after the ERC stands for unique proposal ID number. ERC20 governs the creation and transaction of ERC20 Tokens on the network, and once these rules have been met, the tokens are free to be created and traded across the Ethereum network.
Before the introduction of ERC20, each token executed its own versions of these functions, so each token had its own agreement making complex an exchange which should have been very simple and straightforward. ERC20 enabled an easy transference of tokens because they all have the same functions and rules.
Two Features that make ERC20 tokens superior
ERC20 gives developers a sense of direction
Since ERC20 is a set of rules which Ethereum tokens must follow, this particular token gives developers an idea of how new tokens are going to function on a larger scale. The implication of this is that unlike before when developers had to undertake massive restructuring projects at the release of a new token, they can easily use the prescribed regulations. This is, perhaps, why all tokens released during Initial Coin Offerings (ICOs) are compliant with ERC20.
ERC20 defines the important functions
There are certain functions in the ERC20 which is of immense benefit to other tokens. The basic functionality issues to be addressed, for example, how the tokens are transferred or how users can get access to their token. Even though the ERC20 is still in its inchoate form, it is steadily gaining traction and it is anticipated that all new tokens will conform to its rules.
ERC20 functions
As long as all the ERC20 protocol is adhered to, the creation of any token system for ERC20 is allowed and a token becomes an ERC20. Basic functions of ERC20 tokens standard include balanceOf- an inquiry of balance of token, approve- approval of transfer of token, totalSupply- total supply of tokens, transferFrom - transferring of tokens and allowance. Below are examples of ERC20 Token functions:
totalSupply: With this function, a member in the market can calculate and return the total amount of the token that exists in circulation.
balanceOf: The balanceOf function enables a smart contract- a computer protocol that assesses the performance of a contract- to store and return the balance of the provided address.
Approve: This function allows the owner of the contract to approve the address to withdraw tokens from the owner's address.
Just like your online banking app, this function allows the owner of a contract to send any amount of token to another address.
transferFrom: With this function, and with the owner's approval, the given amount of token is transferred.
The ERC20 is adaptable because it gives developers unlimited freedom and almost anyone can partake in the business of ERC20 tokens because they are run on an open-source and public platform. Although the ERC20 token can be built at any time and the tools to create ERC20 tokens are accessible to everyone, the skill required to create it is a completely different ball game.
It is also important to note that ERC20 is not a software or a piece of code, it is simply a specification standard, caliber, level or quality for tokens on the Ethereum platform.
How to trade ERC20 for Dummies
Now that the answer to “what is ERC20” has been answered, it is expedient to understand how you can trade ERC20 tokens on the Ethereum platform.
There are two simple requirements when you want to trade cryptocurrency.
A cryptocurrency wallet
A cryptocurrency exchange for trade
It is important to know that the cryptocurrency is not part of the regular stock exchange and it is extremely volatile. Start with trading prominent coins and choosing a reputable company that offers exchange and wallet. One in such instance is Coinbase which supports platforms for cryptocurrencies like Bitcoin, Litecoin and Ethereum.
