It should start by knowing that Ethereum is a decentralized platform in which smart contracts can be executed; that is, Ethereum is not a digital currency. Ether is derived from it, which is the cryptocurrency that is born from Ethereum. In simple terms, Ethereum is a code through which the property can be transferred immediately to the buyer and the funds to the seller, without the need for a third party to mediate.
What is a Token?
We can define it as an object or symbol that represents something else. In the Blockchain, a token is financial security or a digital asset. It has similarities to the tokens used in casinos, which symbolize fiat money and can only be used in machines and chance games. Once the concepts of token and Ethereum are clear, we see that Ethereum tokens are simply digital assets made on top of the Ethereum blockchain.
In such a way that Ethereum developers benefit from the existing structure to build their applications, unlike other developers, who decide to build a totally new blockchain. Likewise, tokens give strength to the Ethereum ecosystem, driving the demand for Ether, which is Ethereum’s currency, much needed to give smart contracts the momentum on which tokens are issued.
An ERC-20 token is a smart contract that has a previously established data structure. This type of structure is designed to facilitate the implementation of various functionalities on the Ethereum blockchain, making the developers’ creative work much easier. The Ethereum Blockchain, unlike Bitcoin, was created to be an entire-integrated ecosystem. Therefore, its developers created mechanisms that facilitate tasks, for example, improving the ability to create new currencies on an existing Blockchain. To achieve this, the Ethereum developers created ERC-20 tokens, a proposal by Fabián Vogelsteller and Vitalik Buterin, which was approved in 2015 and became part of the Ethereum EIPs, with the designation of EIP-20 (Ethereum Enhancement Proposal).
ERC stands for Ethereum Requests for Comments or request for comments for Ethereum, number 20 comes from the EIP, describing a standard on the functions and events that an Ethereum smart contract can implement. The ERC-20 token is currently one of the most widely used tokens in the world of cryptocurrencies; In order for the ERC-20 tokens to fully comply with the standard parameters, the developer must incorporate a set of clear functions into their smart contract, which at a very high level will allow the following actions: obtain full tokens provisioning, get account balance, transfer tokens, and approve token spending. ERC-20 enables seamless interaction with smart contracts and decentralized applications of the Ethereum blockchain. Tokens with some standard functions are considered to be partially compliant with the ERC-20 and may continue to interact, depending on the functions required.
The need for a standard token for Ethereum
We are talking about interoperability; if the number of tokens created by the Ethereum network is standard, those tokens are easily interchangeable, so they can immediately work with Dapps that use the ERC-20 standard. A token is “standard” because it uses a set of actions. Developers, knowing how a token works, easily integrate it into their projects, thus avoiding making mistakes. In the same way as Bitcoin and Ether, the ERC-20 tokens can also be tracked in the Blockchain network, which is the ledger where all transactions are registered; this is thanks to the fact that the Ethereum tokens are only a specific type of a smart contract that remains on the Ethereum blockchain.
Many projects currently rely on the Ethereum Blockchain and the ERC-20 standard to issue the necessary tokens to operate their platforms. This market will probably continue to grow after new and better applications that meet this standard to interact with each other.
What do you think about this topic? Did you know about the existence of this Ethereum token?
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