There are many abbreviations in the crypto community. This can scare away beginners, especially considering that often these designations are a combination of letters and numbers. In short, the ERC20 token is a cryptocurrency created on the Ethereum platform. Now let’s figure out what that means.
Many people know ethereum by cryptocurrency ether (Ether or ETH), which can be found on almost every cryptocurrency exchange. One of the unique features that distinguishes it from bitcoin (at least for the moment) is that it suggests the possibility of programming smart contracts. A smart contract is just a marketing designation for computer code that can be used on the blockchain (you can read more about smart contracts in this article). In fact, you can write code in the Ethereum blockchain, and instead of simply storing the transaction history, it will store logical combinations on the basis of which the programs and applications familiar to us are created.
But, to be completely accurate, we cannot simply call them applications. After all, they are not like regular applications; These applications, which are recorded on the Ethereum blockchain, are decentralized in nature, because the Ethereum platform itself is decentralized. Therefore, we call them decentralized applications (or dapps for short).
Due to the majority of these dapps, the creators want to issue their own coins, which are called tokens. Users must use a specific coin when interacting with a specific dapp.
ERC20 is a standard that describes ethereum tokens
People quickly realized that creating standards required certain standards. This is how to issue a credit card. Each card has a black stripe on the back, and most modern cards also have a chip. Card number, expiration date and security code are standard standards for cards.
But imagine that someone decides to create a credit card on which there will be no information other than a QR code. Of course, such minimalism will look stylish, but it is unlikely to be appreciated in stores, because it does not comply with standard credit card design rules.
ERC20 is a standard for creating tokens on the Ethereum blockchain. It includes a list of rules tokens must comply with. In this article, we will not go into technical details.
ERC20 Token Storage and Trading
Since ERC20 tokens are built on the Ethereum blockchain, they can be exchanged for ether. You can use your Ethereum wallet to store them and send these coins to other Ethereum wallets. However, never use cryptocurrency exchange addresses.
We will not delve into the technical details of why you should not do this; Just be aware that exchanges generate unique addresses for each coin. In other words, your address for ether and for the ERC20 token will be different. If you try to send the ERC20 token to the ETH address of the exchange, it will not recognize it and you will not be credited with ERC20 tokens. However, in your own wallet you can store any cryptocurrencies based on ethereum.
Why build dapps on ethereum
This is a good question and there is no easy answer. Since the launch of smart contracts on Ethereum in 2015, many other blockchains with similar functions have appeared. For example, the NEO blockchain, which uses traditional programming languages such as Java, while Ethereum has its own Solidity language. Perhaps this does not tell you anything. The bottom line is that there are other blockchains that support smart contracts that are different from Ethereum smart contracts.
However, Ethereum remains the number one smart contract platform with the largest market capitalization. Of course, this does not mean that it is beyond the reach of competitors, because ethereum has many shortcomings. But with thousands of dapps that have already invested a lot of money, he is far ahead of the competition in terms of global recognition of the platform.
Now, when someone says “Ethereum Token” or “ERC20 Token”, you can broadly understand what you hear. Remember that this is just a cryptocurrency built on the Ethereum blockchain.