ERC-20 coins are standardized tokens issued on the Ethereum blockchain. This standard makes it easy to issue and manage a variety of digital assets through smart contracts, and is especially popular among DApp developers. ERC-20 tokens have the advantage of being highly interoperable, allowing them to effectively combine traditional financial systems with emerging blockchain technology.
In this article, we'll take a closer look at ERC-20 coins from the basic concept to the main types, how they work, their pros and cons, security elements, and discuss their future prospects. This will give you a better understanding of ERC-20 tokens and allow you to delve deeper into the possibilities of using them.
Overview of ERC-20 coins
ERC-20 coins are a token standard based on the Ethereum blockchain network. The standard serves to increase interoperability and compatibility between coins. Below, we'll cover the main concepts and features of ERC-20 coins.
Basic concepts
ERC-20 coins are issued through smart contracts created according to specific protocols. These protocols include the following essential features
- Total Supply: Specifies the maximum number of tokens to be issued.
- Balance of: Check the token holdings of a specific address.
- Transfer: Sends the token to the specified address.
- Approve: Allows others to spend a specific amount of tokens.
- Allowance: Check the amount of tokens available for others to use.
Key features
The ERC-20 standard provides the following key features
- Interoperability: All ERC-20 tokens operate under the same rules, making them easily exchangeable on a wide range of wallets and exchanges.
- Automated trading: Smart contracts enable conditional trading automatically.
- Secure: ERC-20 tokens are traded via smart contracts, which makes the transaction process more secure.
Use cases
ERC-20 coins are being utilized in a variety of fields:
- Crowdfunding: Mainly used in funding schemes such as Initial Coin Offerings (ICOs).
- DApps: Used by decentralized applications and as a payment method for services on the Ethereum network.
- Stablecoins: The ERC-20 standard is also widely applied to stablecoins designed to have a value pegged to a fiat currency, such as USD.
As you can see, ERC-20 coins have a wide range of features and use cases, making them an important part of the blockchain ecosystem.
List of major ERC-20 coins
ERC-20 tokens are a standard convention used primarily on the Ethereum network. In this section, we'll introduce you to some of the main well-known ERC-20 coins.
Typical ERC-20 tokens
Some of the more popular ERC-20 tokens include
- Uniswap (UNI): The governance token of the Uniswap exchange, which gives users voting rights.
- Chainlink (LINK): A token on a decentralized oracle network that allows smart contracts to access external data.
- Tether (USDT): A very popular stablecoin that is 1:1 exchangeable with the US dollar.
DeFi-related ERC-20 tokens
ERC-20 tokens are also being actively used in the decentralized finance (DeFi) space:
- Dai (DAI): A stablecoin issued by MakerDao, backed by Ethereum-based assets.
- AAVE: The native token of DeFi lending platform Aave, which offers a range of financial services.
- Compound (COMP): The governance token of the Compound protocol, which gives users the right to participate in the operation of the protocol.
Other notable ERC-20 tokens
There are many other notable ERC-20 tokens:
- Basic Attention Token (BAT): A token that allows you to be rewarded for watching ads in Brave Browser.
- Zerox (ZRX): The native token of the decentralized exchange protocol ZeroX, used for transaction fees and governance.
- Zoom (ZT): A token used on the Trevela travel platform, offering discounts on hotel bookings or airline tickets.
There are many other ERC-20 tokens, each with different uses and features, so be sure to do your research on the projects you're interested in.
How ERC-20 coins run
Running an ERC-20 coin requires some important steps and considerations. In this section, we'll explain how to run an ERC-20 coin.
Create a smart contract
- Use Solidity: ERC-20 coins are primarily developed using Solidity. This language is very useful for writing smart contracts.
- Leverage contract templates: We recommend leveraging existing ERC-20 templates to make development easier.
- Implement critical functions: The ERC-20 standard requires certain functions. For example, `totalSupply`, `balanceOf`, `transfer`, etc.
Testing and validation
- Use a testnet: You should use a testnet (e.g. Ropsten, Kovan) to test your code before actual deployment.
- Automated tests: You can set up automated tests using tools like Truffle or Hardhat.
- Audit: For security and reliability, it's important to have it verified by an external audit service.
Mainnet deployment
- Prepare for the Gas Fee**: Gas fees are required for mainnet deployment. Please have enough Ethereum ready.
- Select a deployment tool: You can deploy your smart contract using Remix, Truffle, Hardhat, and more.
- Post-deployment management: Continuous monitoring and maintenance is required even after deployment. If any relevant bugs are found, they need to be fixed and updated immediately.
These steps will help you run your ERC-20 coin more efficiently.
Advantages and disadvantages of ERC-20
ERC-20 tokens run on top of the Ethereum blockchain and are used by many cryptocurrency projects and dApps. Let's take a look at the advantages and disadvantages of these ERC-20 tokens.
Key advantages of ERC-20 tokens
There's a reason why ERC-20 tokens are getting so much attention. Below are the main advantages:
- Interoperability: All tokens that follow the ERC-20 standard use the same protocol, allowing them to work seamlessly across different platforms.
- Ease of development: Once a standard is established, developers can easily create and manage new tokens based on it.
- Security: Thanks to the strong security of the Ethereum network itself, ERC-20 tokens are also highly secure.
- Liquidity: Most centralized and decentralized exchanges support ERC-20 tokens, which increases liquidity.
The main disadvantages of ERC-20 tokens
However, ERC-20 tokens also have some drawbacks:
- High gas costs: The congestion of the Ethereum network when executing smart contracts can cause high gas costs.
- Scalability issues: High volumes of users and transactions can limit network scalability and slow down processing.
- Limitations of standardization: Because the ERC-20 standard does not cover all features, it may be difficult to meet certain requirements.
Understanding with real-world examples
The advantages and disadvantages of each become more apparent in real-world examples. For example:
- Interoperability: We're seeing projects like Uniswap (UNI) and Chainlink (LINK) integrate easily with a variety of dApps.
- High gas costs: A common problem on DeFi platforms, users are burdened with transaction costs.
- Scalability issues: Network congestion caused by the popularity of the CryptoKitties game is a prime example.
As you can see, ERC-20 tokens have many benefits, but they also have drawbacks that require a balanced approach.
Security and risk factors for ERC-20 tokens
ERC-20 tokens run on top of the Ethereum blockchain and are the foundation for many digital assets. However, they come with a variety of security and risk factors. In this article, we'll take a look at the main security issues and risks associated with ERC-20 tokens.
Contract code vulnerabilities
Because ERC-20 tokens operate through smart contracts, vulnerabilities in the contract code can cause serious security issues.
- Code Error**: Incorrect code writing can cause unintended behavior.
- Upgrade limitations: Smart contracts are difficult to modify once deployed, so careful initial code writing is required.
- Insider attacks**: A backdoor is planted in the code that can be exploited by an insider.
Privacy and anonymity
All transaction history for ERC-20 tokens is public, so privacy and anonymity are limited.
- Transaction tracking: Since all transactions are recorded on the blockchain, you can track specific addresses.
- Exposure of personal information: When an address is linked to a real identity, there is a risk of personal information being compromised.
- Use a mixer: You can sometimes use a mixer to protect your privacy, but this can come with additional costs and legal risks.
Fraud and phishing attacks
Fraud and phishing attacks involving digital assets are a common problem.
- Phishing sites: There are many phishing sites that mimic official sites to steal user wallet information.
- Token fraud**: Selling fake tokens that don't exist, or impersonating legitimate tokens to trick users.
- Social engineering: Attempts to use people's psychology to gain sensitive information.
To use ERC-20 tokens safely, it's important to fully understand and heed these security considerations.
The future of ERC-20 coins
ERC-20 tokens have become an important standard in the blockchain and cryptocurrency industry since they were first proposed in 2015. We'll cover the possible future development of ERC-20 coins and their impact.
Technological advancements and scalability
The ERC-20 standard is constantly evolving, and technological advances continue to be made to provide better performance and security. Key changes include
- Upgrade to Ethereum 2.0: The transition to Ethereum 2.0 will enable higher transaction processing speeds and lower fees.
- L2 Solution: Improve scalability with off-chain transactions to reduce the load on the main chain and enable real-time transaction processing.
Industry applications and partnerships
The future of ERC-20 tokens will be heavily influenced by applications and partnerships in various industries:
- DeFi (Decentralized Finance): DeFi platforms mostly use ERC-20 tokens, which are promoting the decentralization of financial services.
- NFTs (Non-Fungible Tokens): Based on the ERC-20 standard, NFTs are creating new business models in art, gaming, and more.
- Enterprise Partnerships: Collaborations with global enterprises are further expanding the use of ERC-20 tokens.
Regulatory and legal environment
The cryptocurrency regulatory and legal landscape is constantly changing, which could have a significant impact on the future of ERC-20 tokens:
- Global regulatory framework: As governments establish clear regulatory guidelines for cryptocurrencies, we expect to see an increase in legitimate use.
- AML / KYC: Enhanced anti-money laundering (AML) and know-your-customer (KYC) procedures will create a safer and more trusted trading environment.
ERC-20 coins are constantly evolving with technological advances, industry applications, and changing regulatory environments, and will remain an important part of the blockchain industry.
