An ERC-20 token is nothing more than a smart contract that has a pre-established data structure. This structure is designed to facilitate the implementation of various functionalities on the Ethereum blockchain, facilitating the creation work for developers.
Lto blockchain from Ethereum, Unlike Bitcoin, It has been created to be an entire integrated ecosystem. Therefore, its developers created new mechanisms to facilitate certain tasks. An example of this was improving the ability to create new coins "on" an existing blockchain. Something possible with Bitcoin and that we observe in calls colored coins. To achieve this, Ethereum developers created ERC-20 tokens.
Its creation was proposed by Fabian birdcage y Vitalik Buterin, and approved on November 19, 2015. It is part of the EIP de Ethereum, under the designation EIP-20(EIP are the initials in English of Ethereum Improvement Proposal).
Abbreviations ERC they meanEthereum Requests for Commentso Request for Comments for Ethereum, while number 20 comes from the EIP where it is described. ERC-20 describes a standard on the functions and events that a smartcontractdeEthereum can implement.
Currently, ERC-20 tokens are one of the most widely used tokens in the crypto world. The amount of ERC-20 tokens created is huge, you can check in Etherscan how many exist today.
How do ERC-20 tokens work?
ERC-20 tokens are, in principle, smart contracts that are executed in the blockchain from Ethereum. They operate within a programmatic framework established by the Ethereum team. This framework is broad enough to allow different uses without disrupting the operation of the Ethereum blockchain. For example, they are able to keep a sub-accounting parallel to the Ethereum main ledger, having their own unit of account. All this, without mixing the Ether balances of the addresses. But guaranteeing the transparency, traceability and security provided by the Ethereum network.
It is precisely this enormous flexibility that has led to ERC-20 tokens becoming a standard. The main utility of these tokens is to standardize the interface for creating and issuing new tokens on the network. This is accomplished by enforcing certain rules and parameters for acceptance. For example, to alter or move an ERC-20 token, you must have Ether. This situation supports both the economic and the utilitarian part of the token.
The goal and need for ERC-20 tokens is to design a standard, to create interoperability and compatibility between tokens and to foster improvements in the Ethereum ecosystem. This is because ERC-20 tokens greatly facilitate the work of creating new tokens. Since the infrastructure was designed for it. It was also accompanied by tools with that purpose such as the programming language Solidity, or the virtual machine EVM.
Why were ERC-20 tokens created?
La motivationprincipal of developers when creating something that broad was mainly crearun
workdecapacitymultiple. All this under a standard interface reusable for other applications: from purses to decentralized exchanges. All this under one API which guarantees developers the following advantages:
Uniformity in programming. API It is standard and stable which makes it easy to program using it. This makes it easy for developers to creatively create new software based on Ethereum's capabilities.
Reduces the complexity of programming. Since the API is simple, using it reduces the complexity of the software created to use it. This translates into better reading, security and auditability of the written code.
Less complexity in understanding each type of tokens implemented. This thanks to the fact that they will all be based on the same principles of functionality.
Less risk of breaking contracts, as they have no impediments or incompatibilities. This is because the API is stable, the changes made to them improve it, but will never break compatibility.
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Are the ERC-20 tokens a smart contract or not?
ERC-20 tokens are a smart contract with a basic and standard structure on which programmers can implement functionalities using the Ethereum blockchain. Among those functionalities are, for example, Ethereum DApps.
Main features of ERC-20 tokens
As we have already mentioned, ERC-20 tokens are mainly characterized by their extensive adaptation capabilities. But to achieve this, an ERC-20 token uses a certain basic structure that allows it to harness its full potential. In this sense, these characteristics are:
They have a name or identifier and an associated symbol. By means of these two values, it is possible to identify and differentiate the tokens from each other within the Ethereum blockchain.
It is capable of handling the basic economic aspects of its issue. Data such as the decimal precision system and total emission are a fundamental part of the token in its data structure.
It operates an interface to control and review the balances of the addresses of their owners.By this means, the token is able to report the total balance of funds contained in a specific address.
You can manage the transfer system natively.This is due to the fact that the token has functions to handle fund transfers.
Additionally, the token is capable of autonomously managing partial withdrawals of funds from one direction. For example, if Juan is given permission to withdraw 1000 ETH from Maria's account, Juan can withdraw 250 ETH on a first withdrawal. In subsequent withdrawals, Juan can finish withdrawing the rest of the funds, but he can only go up to 1000 ETH. A feature called "Approved" and it depends on another call "Provision".