There is a whole class of Sometimes referred to as a token, or a coin. The two terms are used pretty interchangeably. Essentially, it is a digital... Click for full definition that operates on the Ethereum Blockchain is the technology that underlies cryptocurrency. Not just Bitcoin, but all of them. Blockchain is a kind of ... Click for full definition. To understand this, you need to understand that Ethereum is not merely a cryptocurrency, but is actually a full, distributed computing platform. Think of it like a whole new internet that powers decentralized applications.
Due to this, a lot of crypto projects actually work right on top of Ethereum. Many of the coins that people are trading out there are actually tokens that run on Ethereum. Many of the stablecoins run on Ethereum.
Many of these tokens are known as ERC-20 tokens. Some of the most well-known ERC-20 tokens right now are Chainlink, Synthetix, Maker, CRO…. even stablecoins like USD Coin (USDC). It is really a bit mind-boggling just how much of the entire crypto ecosystem is actually running on top of Ethereum.
So, what does this mean? What is an ERC-20 token?
ERC stands for “Ethereum Request For Comments”. It is essentially a network proposal for a set of improvements to the Ethereum platform. The proposal can include a number of standards designed to enable certain activities on the Ethereum network.
ERC-20 was a request for comments proposed in 2015 by a guy named Fabian Vogelsteller. The proposal laid out guidelines for standardizing how tokens work on the Ethereum blockchain. It lays out the rules and functionality for how to transfer coins, how to keep token account balances, how to define total coin supply, etc. Essentially, the functionalities we are used to in a purpose-built blockchain like Bitcoin, ERC-20 set out the standards for similar functionality working on top of Ethereum.
See, Bitcoin was designed to be a currency. That’s the only thing it can do. Ethereum is not a currency, but a full decentralized computer system. For it to be able to power financial applications, it needs to have a set of standardized functionality and rules built to make it work that way. ERC-20 is that standard.
ERC-20 has been an extremely important standard for token operations on Ethereum and really set the protocol for all kinds of token-based assets, Short for Decentralized Finance. It is a brand new breed of finance that provides typical financial services in a decent... Click for full definition, etc. As more and more assets and applications are built that comply with ERC-20 standards, it provides a lot of compatibility and interoperability between numerous different crypto assets.
In essence, ERC-20 is to token-based activity on Ethereum…. what HTTP is to how web pages can be served over the internet. Not in terms of functionality, but the fact that it provides a common standard (or protocol) for how it works.