ERC20 is an official protocol for proposing improvements to the Ethereum (ETH) network and can be understood as a standard for tokens that are created on the Ethereum blockchain. For example, many ICO tokens are ERC20 tokens. ICOs, or initial coin offerings, are fundraising events where companies raise funds for projects by selling digital tokens.
A traditional finance analogy would be IPOs, or initial public offerings. IPOs are when companies get listed on public stock exchanges and sell stocks (shares) of their company to the public in order to raise funds.
The ERC20 token standard makes it easier to exchange one ERC20 token for another, integrate various ERC20 tokens into platforms like blockchain wallets and exchanges, and more.
ERC stands for Ethereum Request for Comments. This is an official protocol for proposing improvements to the Ethereum (ETH) network. “20” in this case is the unique proposal ID number.
The proposal ERC20 defines a set of rules which need to be met for a token to be called an “ERC20 token”. These rules apply to all ERC20 tokens because the rules need to be followed in order for ERC20 tokens to be able to interact with each other.
ERC20 rules are as follows.
- Token Name
- Symbol (e.g. REP)
- Decimal (how many decimal places a token can be divided into – up to 18)
- totalSupply (total supply of tokens created)
- balanceOf (a function, that when used, shows the number of tokens held in a given wallet)
- transfer (how many tokens can be transferred from the total token supply to a user wallet)
- transferFrom (a function that allows users to transfer tokens to other users)
- approve (checks transactions against the total token supply – prevents counterfeiting and fraud by verifying that transactions don’t increase or decrease total token supply)
- allowance (function that checks individual wallets and cancels transactions if wallet funds are insufficient)
Below are our recommended ERC20 wallets: