What is ERC – 20? Advantages, disadvantages & how to create ERC- 20 network tokens

In this article, we will explore ERC-20 and ERC-20 tokens along with their applications and advantages and disadvantages. For those who may be unfamiliar, ERC-20 is a type of standard for tokens that runs on the Ethereum blockchain. We will also provide information on how to create an ERC-20 wallet. It is common for individuals who are new to the world of cryptocurrency to question what ERC-20 tokens are and how they are used. Through this informative piece, we aim to provide readers with a comprehensive understanding of ERC-20 and ERC-20 tokens, as well as their pros and cons.

What is ERC – 20?

The ERC – 20 standard is utilized for the issuance and deployment of tokens on the Ethereum network, specifically for Fungible Tokens. It enables developers to adhere to a predefined set of rules, allowing for the seamless functioning of ERC20 tokens within the Ethereum ecosystem.

In November 2015, Vitalik Buterin and Fabian Vogelsteller proposed ERC20, which eliminates the need for developers to create new structures by following a pre-existing framework. This allows for more efficient development on a widely-utilized platform within the industry.

Application of ERC-20 tokens

The ERC20 contract structure comprises six compulsory functions, namely totalSupply, balanceOf, transfer, transferFrom, approve, and allowance. Additionally, there are optional functions such as name, symbol, and decimal.

By integrating all of the aforementioned features, it is possible to create an ERC20 token. This enables us to access the total supply, verify balances, transfer funds, and grant authorization to other DApps for the management of their own tokens.

The ERC20 token’s flexibility largely contributes to its attractiveness, as its established conventions do not restrict its development, leaving parties with the ability to implement additional features and set specific parameters suitable to their needs. Notable applications of the ERC20 token include:

• Governance tokens of projects.
• Utility token of DeFi projects.
• Stablecoins.
• …

Advantages & disadvantages of ERC – 20 tokens

Advantages of ERC20 tokens

Fungible token

Each ERC20 network token is interchangeable, meaning each unit has the same usability and equivalent value. It is not important which specific token you hold if you have 1 USDC. You can trade or exchange it with someone else’s token and they will still function the same, similar to buying meat or fish at a market and paying with any 10,000 VND note.

It is highly advantageous if your token aims to become a form of currency. Having individual units with distinct characteristics would not be desirable, as this would render them irreplaceable. Such a scenario could result in certain tokens being more or less valuable than others, thereby undermining their intended purpose.

Flexibility

ERC20 tokens possess high customizability and can be adjusted to cater to varied applications.

For instance, ERC20 Tokens have the capability to function as currency and engage in transactions within Automated Market Makers (AMM), or alternatively, can be deposited in Lending platforms to earn interest.

Popularity

The widespread adoption of ERC20 within the Crypto space presents a compelling rationale for its use as a universal standard. A plethora of exchanges, wallets, and smart contracts have demonstrated compatibility with ERC20 tokens. Additionally, ample developer support and documentation adds to its appeal as an optimal choice.

Disadvantages of ERC20 tokens

Ability of extension

Similar to many other blockchain networks, Ethereum faces significant challenges in terms of scalability. Unfortunately, Ethereum’s current scalability expansion efforts have been ineffective, resulting in high transaction fees and delays during peak times. Consequently, this issue has a detrimental impact on the usability of ERC20 tokens.

Fraud risk

Although it is not a fault of technology per se, the ease of launching new tokens can be considered as a drawback of ERC20 in several aspects. At present, creating a simple ERC-20 token is very straightforward, which means that anyone can do it, regardless of whether their intentions are good or bad.

Therefore, it is advisable to exercise caution when investing. There are numerous scams utilizing Ponzi schemes disguised as blockchain projects. Prior research is imperative before investing in any project.

ERC-20 network standard rules

In order to create ERC20 network tokens, it is imperative for individuals to ensure adherence to the ERC20 standard, which entails compliance with 9 predetermined rules governing the following 9 corresponding functions.

6 mandatory rules

• totalSupply: Total number of tokens issued.
• balanceOf: Check the token balance in each Ethereum wallet.
• transfer: This function will manage the transfer of tokens to the user’s wallet address.
• transferFrom: Allows token holders to exchange with each other.
• approve: Check each transaction and compare it to the total supply to ensure there are no shortages or excess tokens.
• allowance: Check the token balance to see if the wallet address has enough tokens to transfer or not.

3 custom rules

• Token Name: Token name.
• Symbol: Token code.
• Decimal (up to 18): The smallest decimal number.

Summary

After conducting research, I have gained knowledge on the concept of ERC20 and ERC20 tokens, their functionalities, as well as their advantages and drawbacks. In case you have any further inquiries regarding this topic, please feel free to leave a comment below, and our team at 247btc.net will be glad to assist you promptly.