- ERC-20 stands for Ethereum Request for Comments (unique proposal ID number) 20.
- It creates a framework defining what ERC-20 tokens can do by prescribing a list of functions and event interfaces that can be used by them.
- It sets a standard for tokens and makes them compatible with each other.
What is ERC?
To make these tokens compatible with each other, the Ethereum community follows procedures specified by a technical document called ERC.
ERC stands for Ethereum Request for Comments and it is usually equipped with a unique proposal ID number. This prescribes how tokens can be shared, exchanged or transferred to a crypto wallet.
Ethereum Request for Comments is an official protocol for implementing improvements to the Ethereum network. ERC standards are created by the Ethereum community developers.
The developers make a document describing methods and rules that they think would improve the Ethereum ecosystem. If the core developers and community agree with the proposal, it becomes a standard.
All tokens following the ERC-20 standard can be held in most ERC-20 compatible wallets without any additional technical work.
What does ERC-20 do?
ERC-20 defines the preliminary rules of Ethereum tokens by defining what kinds of functions and event interfaces they can use. This means that it does not prescribe the exact logic of the tokens, but sets an approximate framework in which the code of the tokens can be written, allowing developers to predict how new tokens will function within the Ethereum system.
ERC-20 tokens are designed for use on the Ethereum platform. They follow a list of standards so that they can be shared, exchanged for other tokens of the same standard, or transferred to a crypto wallet.
ERC-20 ensures that projects do not need to be redone each time a new token is released. The ERC-20 standard ensures that old tokens are compatible with new ones (if the new tokens follow the ERC-20 rules). Most of the tokens released on Ethereum as initial coin offerings are ERC-20 tokens.
Why is ERC-20 important?
ERC-20 makes the management and creation of tokens simpler. Before the ERC-20 standard was created, developers had problems deciding what terminology to use in the code. This meant that exchanges and wallets needed to build their own platforms to be able to accept each new individual token.
ERC-20 sets rules for tokens to follow so that all tokens within the Ethereum system can be compatible. These rules ensure that different types of Ethereum tokens work the same way anywhere within the Ethereum network.
When ERC-20 became the standard, new tokens could be listed on an exchange or transferred to a personal wallet automatically. This means that almost all wallets that support Ethereum’s currency (ETH), also support tokens that follow ERC-20 standards.
How are ERC-20 tokens made?
ERC-20 tokens are created through smart contracts. Tokens need to meet a set of rules in order to be accepted and called an ERC-20 token.
These standard rules apply to all tokens on the Ethereum network, making them interchangeable with other tokens (or fungible) based on this protocol. Tokens that follow the same standards are equal to, and can be exchanged for one another.
To buy, sell and trade tokens on Ethereum, you need to pay a fee for the transaction. The fee is determined by the amount of gas it takes for the transaction to be written into the blockchain and paid in a subunit of ETH.
As you would expect from the longest-standing cryptocurrency exchange in the world, you can buy ETH quickly and easily at Bitstamp, plus several ERC-20 tokens too. Simply register a free account and start trading right away!