ERC-20 tokens are standard contracts implemented on the Ethereum blockchain using a specific set of rules. These rules define a common list of functions and events that an Ethereum token contract must implement to be considered ERC-20 compliant. This standard was proposed by Ethereum developer Fabian Vogelsteller and was finalized in 2015 by Vitalik Buterin, the creator of Ethereum.
Here are some key characteristics of ERC-20 tokens:
Fungibility: ERC-20 tokens are interchangeable with one another. This means that one token is the same as any other token of the same type, and they hold equal value.
Interoperability: Since ERC-20 tokens share a common standard, they can be used interchangeably in various applications, such as decentralized exchanges (DEXs) and wallet services that support this standard.
Smart Contracts: They are based on Ethereum's smart contract functionality. Smart contracts are self-executing contracts with the terms of the agreement directly written into code.
Common Functions: ERC-20 tokens must implement certain functions like totalSupply (to get the total supply of tokens), balanceOf (to check the balance of tokens in an address), transfer (to send tokens), and others.
Events: They also define a set of events like Transfer (which is triggered when tokens are transferred) and Approval (which is triggered when a user allows another address to spend tokens on their behalf).
Decimals: The number of decimals can be specified, allowing for fractional amounts of tokens to be used.
Security and Trustlessness: ERC-20 tokens benefit from the security and trustlessness of the Ethereum blockchain. Transactions are recorded on a public ledger and can be verified by anyone.
Token Standards: Beyond ERC-20, there are other token standards like ERC-721 (for non-fungible tokens) and ERC-1155 (which allows for both fungible and non-fungible tokens in a single contract).
Token Creation: Anyone can create their own ERC-20 token by deploying a smart contract that adheres to the ERC-20 standard.
It is very important to understand the following:
ERC20 tokens do not have their own blockchain. They are non native assets.
Instead, they are created and operate on the Ethereum network. ERC20 tokens are a type of smart contract on the Ethereum blockchain. The term "ERC20" stands for Ethereum Request for Comment 20, which is a standard interface for fungible tokens on the Ethereum blockchain.
These tokens are essentially programmable digital assets that follow a set of rules defined by the ERC20 standard. This standard ensures that ERC20 tokens can be easily exchanged with one another, as they share common functions like transferring tokens, checking balances, and approving spending.
While Ethereum is the most common blockchain for ERC20 tokens, other blockchains can support similar token standards with their own unique names (e.g., Binance Smart Chain has BEP-20 tokens). Each of these token standards is specific to the blockchain it is designed for, and they are not interchangeable without going through a specific process of conversion.
In summary, ERC20 tokens do not have their own independent blockchains; they rely on the infrastructure provided by the Ethereum network.
Sources:
Ethereum GitHub Repository - EIP-20: ERC-20 Token Standard https://github.com/ethereum/EIPs/blob/master/EIPS/eip-20.md
Ethereum. org's ERC-20 Token Standard https://ethereum.org/en/developers/docs/standards/tokens/erc-20/
What Are ERC-20 Tokens on the Ethereum Network? https://www.investopedia.com/news/what-erc20-and-what-does-it-mean-ethereum/
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