Ethereum’s ERC20 Token Standard
The Ethereum blockchain distinguishes itself from other blockchains with its innovative decentralized application (DApp) functionality. Using tokens, developers can build and launch their very own DApp on the Ethereum blockchain. However, the opportunity to create a wide range of token based DApps also comes with problems, and the implementation of ERC20 (Ethereum Request for Comments 20) is designed to tackle those issues.
Firstly, a token is nothing more than a smart contract that runs on top of the Ethereum blockchain, with the behavior of the token being dictated by its code base. Tokens are typically incorporated into DApps to represent anything of value, from digital assets, to objects in the physical world. Before ERC20, if a developer wanted to enable the cross trading of tokens, e.g. trading ‘Token A’ for ‘Token B’, the developer would have to closely examine the intricate code base behind Token A and Token B to handle the trade. This process soon becomes an arduous and complex one if a developer wants to implement the cross trading of Token A with Tokens B – Z. The code base behind each token would have to studied in order to implement a simple token exchange. ERC20 is designed to tackle this problem by establishing a common set of rules that developers must adhere to in order for their token to be ERC20 compliant. Although not an obligatory standard, developers are encouraged to adhere to the ERC20 standards because of the benefits it brings. As well as easier cross-token exchange, ERC20 compliant tokens can also seamlessly interact with various wallets and exchanges because developers of wallets and exchanges already understand how compliant tokens will behave.
In order for a token to be ERC20 compliant, the code base behind the token must be able to perform the following functions:
- Retrieve the total token supply.
- Retrieve the token holder’s account balance.
- Transfer the token from the owner to another party.
- Approve use of the token as a monetary asset.
ERC20 is a major step for the Ethereum blockchain. With aims to create an ecosystem of seamlessly integrated DApps, ERC20 is a positive step in the right direction by encouraging interoperability between tokens.