If you are only familiar with major cryptocurrencies like Bitcoin, Litecoin, and Ethereum, then you may have never heard of an ERC-20 Token. Once you get your feet wet with cryptocurrencies you quickly realize that the landscape is comprised of so much more than just a few coins — in fact, at the time of writing there are over 1300 cryptocurrencies.
For a long time there were just a handful of coins until Ethereum entered the scene. While many are familiar with Ethereum’s native token Ether (ETH), the ERC-20 Token is completely different to ETH. So what is an ERC-20 Token? Follow along as we describe exactly what an ERC-20 token is and why they only work on the Ethereum network.
The Rise Of The Token
In 2017 we saw a major explosion in the number of cryptocurrencies that made it to exchanges due, in part, to the Ethereum network. Put simply, Ethereum is a development platform for decentralized application development. It allows other developers to utilize the Ethereum network to build their applications on top of it. This makes it much easier to create decentralized applications that use “tokens” as a form of settlement or transaction within the application.
Tokens are not a full-on cryptocurrency with their own unique blockchain, they run off the Ethereum blockchain, which allows developers to focus on the application and not the coding of a new blockchain. These tokens can be used in a variety of ways within a decentralized application, but typically we see them as a necessary and fully integrated part of the application itself. Tokens are typically how you interact with the smart contracts that are created by these decentralized applications to perform certain functions within the app.
The ERC-20 Standard
Ok, so now we know that a “token” is not a standalone cryptocurrency but rather a way to interact with and utilize decentralized applications that are built on the Ethereum blockchain platform. The process of creating tokens that work efficiently on the Ethereum network has significantly evolved in the last 2 years with the creation of what is known as the “ERC-20 Standard”. This is where an ERC-20 Token gets its name from. The ERC-20 Standard outlines a set of common rules that all tokens can follow on the Ethereum network to produce expected results.
This makes it very easy for developers to quickly understand how their token will work across the Ethereum network at large. The ERC-20 standard significantly reduces the creation time of a project, because a developer does not have to continually reinvent how tokens are interacted with for basic functions like transfers or retrieving data about a token.
Since these easy-to-follow set of ERC-20 standards have been in place we have seen a huge increase in the number of tokens in the cryptocurrency space. This is the reason why an ERC-20 token will only work on the Ethereum platform, they are essentially tied to the network that they were developed upon.
The Popularity Of ERC-20 Tokens
Most of the Ethereum based tokens being created today are ERC-20 compliant even though it is a standard that is not officially enforced or adopted at this point. Some of the more popular ERC-20 tokens are OmiseGo (OMG), EOS, Salt, Power Ledger (POWR), and Basic Attention Token (BAT) just to name a few. All of these projects are built of off the Ethereum platform and incorporate their own ERC-20 token to interact with their decentralized application.
While this makes it incredibly easy to get a project off the ground, the drawback is that they can only ever live on the Ethereum platform and that may limit their utility in the future. With it being so easy to create them, we have seen some really amazing projects as well as some really bad ones, so it is always best to do your own research before supporting a particular token. Nevertheless, ERC-20 tokens are here to stay for the foreseeable future and the Ethereum platform will only grow strong with each new token created.
One of the main reasons the Totle platform exists is to make it easier for you to interact and diversify into the countless ERC-20 tokens out there without having to open up a wallet and exchange for each one. At the end of the day, the Totle platform makes it easy to manage a huge portfolio of ERC-20 tokens for the beginner or advanced crypto enthusiast.
link to our original article we posted: https://medium.com/@totlecrypto/what-is-an-erc-20-token-and-why-do-they-only-work-on-the-ethereum-network-fc126cbeea9