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What is an ERC20 Token?

ERC20 is a set of standards that allow developers to create their own tokens on the Ethereum blockchain platform. Many of the top cryptocurrencies today are in fact ERC20 tokens created on Ethereum.

ERC20 is a set of rules and regulations for developers to create tokens based on the smart contracts built on the Ethereum blockchain. ERC stands for Ethereum Request for Comment and the number ’20’ is the number assigned to this request. ERC20 tokens are responsible for the creation of several billion-dollar ICOs (Initial Coin Offerings). They have played a huge role in popularizing cryptocurrencies.

Ethereum, dapps and smart contracts
Vitalik Buterin, the creator of the Ethereum blockchain envisioned it as a worldwide platform where developers could write and run multiple applications just like how the Google play store works. These apps or dapps (decentralized apps) have smart contracts.

Smart contracts are very similar to regular contracts and they get automatically executed if certain specified conditions are met.

What are tokens and what do we use them for?
A token is a representation of something in its particular ecosystem. It could represent value, stake, or voting right. A token can also play multiple roles in an ecosystem. In the context of a dapp, it can act as a toll charge that helps you access the dapp. It can also confer a right to vote in the blockchain ecosystem. Tokens can also create some kind of an internal economic system. Finally, a token can be a currency or a store of value and be used for transacting within or outside the system.

Initial Coin Offerings (ICOs)
ICOs are the crypto equivalent of Initial Public Offerings. An investor can read the white paper of the project and if interested he could invest in the project by purchasing the tokens offered by the particular dapp. And these tokens become a store of value or a currency.

What are standards and why do we need them?
Just like all credit cards have a standard structure, a chip on the front side, the credit card number of a certain length, the logo on the right hand side and a magnetic strip at the back and so on. This standard structure makes it easy for any merchant or any bank ATM to process any credit card. Token standards work in a similar way. They are built based on standards so that they can be shared and exchanged for other tokens and be stored in a wallet.

What are the problems with ERC20 tokens?
Developers have faced some issues relating to defective code while transferring funds from the dapp to other smart contracts. Also, since anyone can create a token on the platform, several scammy projects have created tokens that eventually proved to be detrimental to investors.

What is the future of ERC20 tokens?
There are other standards (such as ERC 777 and ERC 223) that are better, ERC20 with a few technical bugs is still in vogue. Moving to new standards may result in higher network effects leading to even more scalability problems that the network is facing currently. Hence, the ERC20 standards are definitely going to be around for at least a few more years.


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