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What are ERC20 Tokens & Where Can I Trade Them?

July 11, 2018

Ethereum Network ERC20 token

If you’re first getting into cryptocurrency, there’s a good chance you’ve heard of Ethereum and subsequently, the term “ERC20 token” thrown around. For starters, throw away any present notion of labeling Ethereum as a cryptocurrency, and start recognizing it for what it is - a blockchain-based computing platform building an entire ecosystem for:

  • Smart contracts functionality, &
  • Deployment of DApps (Decentralized Applications).

As Ethereum has solidified its stronghold in the blockchain ecosystem, it’s largely thanks to its ability to facilitate, create, and power smart contracts. Furthermore, the diversity of smart contracts and enablement of virtually any person or developer to launch a token or project on the Ethereum network has added unprecedented depth.

So, how exactly do developers launch their own token or project on the Ethereum network? Through ERC20 tokens.

1. What Are ERC20 Tokens?

Short for “Ethereum Request for Comment,” ERC20 simplify refers to the technical standard for deploying smart contracts on the Ethereum network. At its simplest, ERC20 refers to a common list of standards and rules governing token function and behavior in the Ethereum ecosystem - ultimately allowing for uniformity and certainty in certain token interactions.  

Think about it, with the sheer number of decentralized applications built and deployed onto blockchains, it’s important to have some degree of stability and uniformity. Due to Ethereum’s popularity, ease of deployment, and ecosystem as a whole, developers are flocking to the network to create ERC20 tokens, and as of May 2018 there were over 83,000 ERC20 token contracts on the Ethereum blockchain.

Now that we’ve nailed down a basic definition of what ERC20 tokens are, let’s take a deeper look at the purpose behind them via a simplified example.  

2. The Purpose of ERC20 Tokens

Let’s start with a basic example. Imagine you have four cars which are all produced by separate manufacturers. Unsurprisingly, you’d need a unique key in order to unlock and start each of them. This is similar to what the Ethereum network is looking to curb through their establishment of the ERC20 token standard.

Suppose you had two other cars which were even made by the same company. Odds are you’d still need two different and unique car keys to unlock them both. ERC20 tokens are the connecting standard amongst “cars,” allowing drivers to seamlessly and coherent transition from car to car, with just one key.

Before the creation of the ERC20 token standard, every change, wallet, and blockchain ecosystem had to create a new custom code just to add a token or project.  

Simplicity is the key (literal and metaphorical) here.

3. How are ERC20 Tokens Created & Exchanged

As noted above, in order for any cryptocurrency or token based on the Ethereum network to be considered ERC20 compliant, they have to met a strict set of requirements.

For the purposes of this piece, we will briefly look at six core functions which are mandated in order to achieve ERC20 compliance. Also, keep in mind that tokens may be partially ERC20 compliant, such as the Golem Network Token (GNT).

totalSupply

As the name implies, totalSupply refers to the coin or token’s supply and ultimate cap of how many may be created and mined.

Ethereum has no cap (however, this may change), so you may notice that some ERC20 tokens also don’t support a defined cap in their total supply.

balanceOf

Such function stores and returns the amount of tokens that exist in each address, and due to its requirement of a known address, users should be aware that such address will eventually be publicly broadcasted.

approve()

When a user wants to trade ERC20 tokens, the “approve” function plays an integral role, and is used by the owner of the smart contract in order to authorize (or approve) the address attempting to withdraw tokens from said address. .

transfer()

The “transfer” function is sanctioned whenever the owner of the smart contract wants to send a specific number of tokens to another address.

transferFrom()

While (transfer) may be used in cases where one wants to manually send tokens or coins to a third-party, “transferFrom” virtually executes the same function but through automation of transaction approval - meaning a user doesn’t have to approve the transaction by hand.

allowance

Whenever a transaction is on the verge of being executed, the allowance function is triggered and checks whether a user’s balance and ultimate token supply is sufficient for transaction execution.

At their most basic, the above six functions are required in order for a project or token to be considered fully ERC20 compliant and ultimately used on an Ethereum exchange (centralized or decentralized).

Note that in addition to the above six mandatory functions, there are three optional functions which may be employed and utilized by a project:

  • ‘Name’: May be used in cases where the smart contract owner wants to broadcast the full name of the token created,
  • Symbol: An abbreviation of the token’s full name in order to differentiate it from other tokens. A cryptocurrency and token’s symbol is typically 3-4 characters long and entirely unique to the blockchain ecosystem.
  • Decimals: The number of decimal places the token will be calculated to. Most commonly, such number is set to 18.

Once tokens and coins have met all ERC20 token standards, it’s off to the trading races - meaning that ERC20 tokens may then be traded on centralized or decentralized exchanges. At present, if you’re looking to trade ERC20 tokens, decentralized exchanges are your best bet for variety and ease. Most of the 83,000 ERC20 tokens in the cryptosphere are not able to afford the exorbitant listing fees associated with popular centralized exchanges, and thus typically opt for decentralized exchange listing.

In order to promote a healthy and fair ecosystem, the Cooperative Exchange is enabling all ERC20 compliant tokens and projects to list themselves on our exchange without having to pay any fees. That’s right, zero fees for ERC20 tokens (and other tokens based on popular blockchains).   

4. ERC20 Tokens: A New Token Standard

Not only is the ERC20 token standard allowing for easier and rapid deployment of decentralized applications on the Ethereum network, it’s making it more predictable and stable - an essential in today’s volatile and unpredictable cryptocurrency marketplace and ecosystem. Think of the ERC20 token standard as the glue which is holding a shattered vase together, connecting otherwise incompatible and diverse pieces (projects) while painting a larger, more cohesive picture (network).

It’s important to understand when sending ERC20 tokens between accounts that you make sure to actually send to a smart contract which is configured to accept them. Already, millions of dollars have been lost by users who sent ERC20 tokens to an incompatible network address.

Head on over to our main page where you can read up more about our ICO which is running until August 3rd. At COOPEX, we’re building the world’s first cooperative decentralized exchange, where users have a voice and grow as the exchange does.

We’re in the midst of overhauling centralized and highly ineffective trading mechanisms which are stunting the growth of the present-day blockchain ecosystem, and rolling out an unprecedented user loyalty and buyback program, where every month, we aggregate at least 75% of exchange trading fees to buy back and burn COOP tokens - rewarding users who choose to hold and grow with COOPEX.

Furthermore, we don’t charge listing fees for ERC20 tokens and projects, giving newer and small blockchain projects a fighting chance in today’s highly competitive cryptocurrency marketplace, while ultimately making COOPEX the best decentralized cryptocurrency exchange to trade ERC20 tokens.


What are you waiting for? Head on over to our BTC, BCH, and ETH markets to get yourself some COOP tokens today!

 

Read more:

What is Liquidity? Cryptocurrency Exchange Listing Fees & Exploitation

 

posted by Jonathan Downing

View all posts by Jonathan Downing