Crypto Users Need to Know: The ERC20 Standard

ERC20 standard is a set of rules and standards on the Ethereum blockchain that allows users to create their own digital tokens and decentralized applications (dApps). While many blockchains like Bitcoin function only as blockchains, Ethereum goes beyond that by providing a platform for creating various applications and tokens.

The ERC20 standard is implemented through smart contracts on the Ethereum network. Smart contracts are like digital agreements with specific protocols and guidelines. Developers can leverage these smart contracts to create their own tokens on the Ethereum blockchain. Numerous popular cryptocurrencies in the market today were initially built on the Ethereum blockchain, with some like Uniswap continuing to use the Ethereum contract, while others like Binance Coin have migrated to their own blockchains over time.

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What are the features of ERC20 tokens?

ERC20 tokens are the most commonly used token type on the Ethereum network and are often referred to as utility tokens. Over thousand of tokens have been created using this smart contract. These tokens serve as a means of payment for various transactions and possess different stable properties.

ERC20 tokens have a limited supply, meaning there is a maximum predetermined quantity and the number of tokens in circulation can never exceed this supply. These tokens are also tradable, allowing users to buy, sell\ and exchange them. To store ERC-20 tokens, one needs an Ethereum-compatible wallet such as MetaMask.

What are the Advantages of ERC20 Tokens?

1. Simplified token creation: Developers can create their own cryptocurrencies without the need to build an entire blockchain from scratch.
2. Seamless interoperability: Tokens generated using this standard can easily interact with other entities utilizing the same contract, facilitating integration and compatibility.
3. Versatile for projects: It enables the generation of tokens suitable for various projects and platforms.
4. Usability as a means of payment: ERC20 tokens can be used for transactions and serve as a form of payment.
5. Support for NFTs and DeFi: This standard allows for the creation of tokens used in transactions within the NFT and DeFi.

 What are the disadvantages?

1. Network congestion: Due to the large number of tokens using this standard, the Ethereum network can experience congestion, causing slower transaction speeds for ERC20 tokens.
2. Security risks: Since this standard is widely used, tokens utilizing this contract can become attractive targets for hackers.
3. The proliferation of non-functional tokens: The ease of creating tokens through this smart contract has led to the existence of a significant number of tokens that lack practical functionality.

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