Emerald Blockchain Course: 20. What Are ERC 20 Tokens?

An explanation of the ERC-20 standard.

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By Donald McIntyre

October 30th, 2022

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Emerald Blockchain Course class 18 about ERC-20 tokens.

You can watch this class here:

In this Emerald Blockchain Course post we explain what are tokens and cryptocurrencies, native cryptocurrencies, native programmable cryptocurrencies, and we finalize with a description of what are ERC-20 tokens.

1. Let’s Start by Explaining What Are Tokens or Cryptocurrencies

In the blockchain industry, tokens or cryptocurrencies are units that are issued inside blockchains for various purposes.

These units are used as money and for other ways because they have appropriate qualities such as divisibility, fungibility, transferability, durability, and scarcity.

Other properties may be added, such as voting rights, association with external assets, and integration with dapps.

Tokens or cryptocurrencies.

2. What Are Native Cryptocurrencies?

As we explained in previous classes, native cryptocurrencies are the tokens or coins that are issued by a blockchain network protocol each time there is a new block produced.

This type of tokens are also used to pay for transaction fees.

Examples are Bitcoin, Ethereum, and Ethereum Classic.

Native cryptocurrencies.

3. What Are Programmable Native Cryptocurrencies?

Programmable native cryptocurrencies are exactly the same as native cryptocurrencies, but their networks also support smart contracts, which are decentralized software programmes. This makes these cryptocurrencies programmable.

Examples of these are Ethereum and Ethereum Classic.

Programmable native cryptocurrencies.

4. What Are Non-native Tokens or Cryptocurrencies?

In programmable blockchains it is possible to write software programmes to issue more cryptocurrencies. The smart contract protocol used for these cases is the ERC-20 standard.

For the above reason, these cryptocurrencies are called “ERC-20 tokens”.

However, they are not native cryptocurrencies or tokens as they are not issued to pay for blocks nor transaction fees.

ERC-20 tokens.

5. What Is the ERC-20 Standard?

If developers were to issue tokens for their dapps with their own specifications, then they would not be compatible nor interoperable with other applications.

The standardization of tokens through the ERC-20 format makes them act just like native cryptocurrencies:

  • They work with the network account format

  • They are transferable

  • Fungible

  • Divisible

  • Versatile

However, the most important purpose of the ERC-20 standard is that everybody uses it so they are compatible within all dapps.

6. What Are ERC-20 Tokens Used For?

As the Ethereum Foundation has stated, ERC-20 tokens can represent virtually anything in programmable blockchains:

  • Reputation points in an online platform

  • Skills of a character in a game

  • Lottery tickets

  • Financial assets like a share in a company

  • A fiat currency like USD

  • An ounce of gold

  • Wrapped cryptocurrencies (WBTC, WETH, WETC, etc.)

  • And more...

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