What is ERC20?

ERC20 is a fundamental standard that plays a key role in the Ethereum ecosystem, facilitating the creation and exchange of digital assets. This standard was developed to unify the approach to designing tokens on the Ethereum blockchain, ensuring their compatibility and integratability across a wide range of applications and services.

History of the emergence of ERC20

Prior to ERC20, early versions of tokens on Ethereum suffered from a lack of standardisation. Different projects implemented their own unique versions of tokens, which led to problems in interoperability between different tokens and applications. For example, some tokens could work with certain wallets while others could not. This created confusion and technical difficulties for both developers and users.

ERC20 was proposed in 2015 by Fabian Vogelsteller and was one of the first standards proposed for Ethereum. This standard was so successful that it played a key role in the wave of ICOs (initial coin offerings) in 2017 and 2018, when many projects issued their tokens based on ERC20.

The essence of ERC20 is to create a common language for tokens on the Ethereum network, providing unification of their functions and interfaces. This made it easier for developers to interact with different contracts and services without worrying about the compatibility of their tokens, and made the process of creating new tokens more accessible and less error-prone.

Thanks to the ERC20 standard, Ethereum was able to become a global platform for creating and exchanging decentralised digital assets, significantly expanding its functionality and attractiveness to developers and investors.

ERC20 feature set

The ERC20 standard defines a set of features that must be implemented in a smart token contract to enable its interoperability with other contracts and wallets. These include:

• Token transfer: allows you to transfer tokens from one address to another.

• Obtain balance (balanceOf): provides information about the number of tokens at a particular address.

• Delegation of management rights (approve and transferFrom): allows token owners to authorise other users to use a certain number of tokens on their behalf.

Thanks to the ERC20 standard, developers can create tokens that will easily integrate with various wallets and exchange platforms, as well as be used in other smart contracts, such as decentralised financial applications (DeFi).

Benefits of ERC20

1. Standardisation and Interoperability: ERC20 provides unification of tokens on Ethereum, allowing different applications and wallets to easily interact with multiple tokens. This simplifies integration and reduces the risk of errors.

2. Simplify Development: The standard makes the process of creating new tokens simpler and more accessible, as developers do not need to create a smart contract from scratch every time, they can use an already proven template.

3. Widespread Adoption: ERC20 is the most widely used standard for tokens in the Ethereum ecosystem, which has contributed to the spread and popularity of Ethereum as a platform for token creation and issuance.

4. Liquidity and Exchange: ERC20 compliant tokens are easier to exchange and trade as they are compatible with most exchange platforms and wallets.

5. Transparency and Interoperability with Smart Contracts: ERC20 provides transaction transparency and allows easy integration with other smart contracts, which is a key aspect for decentralised applications (DApps) and DeFi.

Disadvantages of ERC20

1. Security issues: There have been cases where flaws in the implementation of ERC20 smart contracts have resulted in significant losses, for example due to errors in the approve function.

2. Limited Functionality: ERC20 does not support some complex functions that may be required for more specialised tokens, such as non-fungible tokens (NFTs).

3. Scalability issues: Like all Ethereum transactions, ERC20 token transactions can suffer from scalability issues and high fees during periods of high network utilisation.

4. Standard imperfections: Some aspects of ERC20, such as error handling, were not perfectly worked out in the original version of the standard, which could lead to token losses or other problems.

5. Lack of Backward Compatibility: New standards such as ERC223 and ERC777 offer improvements over ERC20, but tokens created under the old standard cannot automatically utilise these improvements.

It should be noted that while ERC20 is the most well-known and widely used standard for tokens on Ethereum, there are other standards such as ERC721 and ERC1155 that are used to create non-fungible tokens (NFTs) and multi-tokens respectively.

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