Understanding Crypto Currencies: The ECR20 Standard
Without technical knowledge of the blockchain and smart contracts realms, the world of crypto currency is daunting for many investors.
But, the prospect of massive profits in the sector has attracted many types of investors, including those who otherwise might be cautious about investing in an asset, that they did not fully understand.
A basic understanding of some of the Key elements of digital currencies is really helpful in guiding one to safe and sound financial decisions.
A Key concept that governs a large portion of the space is the ERC20 token standard.
ERC20 refers to a token standard for ethereum. It is a technical standard that dictates a number of rules and actions that an ethereum token or smart contract must be able to implement.
ERC stands for “ethereum request for comment,” the standard was developed in Y 2015.
“Request for comment” is a version of a similar concept that was devised by the Internet Engineering Task Force as a means of conveying essential technical notes and requirements.
So, think of ERC20 as a set of basic guidelines and functions that any new token created in the ethereum network must follow.
The ERC20 standard has been a dominant path for the creation of new tokens in the cryptocurrency space for some time. It has been particularly popular with ICOs and crowdfunding companies.
A recent report suggests that ERC20 tokens “almost single-handedly dominated the ICO Bull market of 2017,” and that many successful cryptocurrencies are founded according to ERC20 protocol.
EOS is, as of this writing, the most successful ERC20-based token, having raised $185-M in a 5-day ICO launch.
Bancor is the next on the list, having earned $153-M in crowd funds during its sale.
Multiple other ERC20-compliant tokens raised at least $70-M each in ICOs.
ERC20 was created by ethereum developers on behalf of the broader ethereum network and community in Y 2015 and officially recognized in September 2017.
To create a standard of this type for ethereum, a developer or group of developers must submit what is known as an Ethereum Improvement Proposal (EIP) with specific protocols and standards. A committee then approves, amends, and finalizes that EIP, at that point it becomes an ERC.
Smart contracts are then obligated to conform to 1 of the standards. ERC20 is the best known of all of these ERC standards, however, it is not the only 1.
ERC20 contains several functions, meaning that a compliant token must be able to implement this list, descriptions of each function are in parentheses, as follows:
- totalSupply (provide information about the total token supply)
- balanceOf (provide account balance of the owner’s account)
- transfer (execute transfer of a specified number of tokens to a specified address)
- transferFrom (execute transfer of a specified number of tokens from a specified 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 up to 1 events, including the transfer event (that takes place whenever tokens are transferred) and the approval event, that is activated whenever approval is required.
In March 2018, popular digital currency exchange Coinbase announced its plan to add ERC20 support to a number of its products.
It is expected that the implementation of this change will “open up the door for a more diverse set of cryptocurrency trusts” in the Coinbase Custody platform. Exchanges catering to individual investors could also add new cryptocurrencies to their list of offerings too.
While ERC20 has seen huge support in the form of tokens conforming to its standards, there are many in the development community that believe ERC20 is flawed in 1 or more ways.
For this reason, since the development of ERC20, a number of alternative token standards have also been proposed.
These include ERC223, which aims to address a concern with the approval and transfer elements of ERC20.
ERC621 is another alternative, which suggests the same basic functions that ERC20 provides but also adds the capacity to increase or decrease the total token supply.
ERC827, on the other hand, allows a holder to approve the spending of tokens by a third party.
Notably, each of these new protocol proposals takes ERC20 as its foundation to some degree.