ERC-20 Tokens For Beginners
While most people know that there are different cryptocurrencies, like Ethereum, Bitcoin, Litecoin, or Bitcoin Cash. However, most average users do not realize that there is a massive number of cryptocurrencies exist on the Ethereum network, and have an entire decentralized ecosystem built around them.
Most Cryptocurrencies (Like Bitcoin & Litecoin) consist of a decentralized transaction ledger which stores the token balance of accounts, and ensures that no tokens are created out of thin air, and no transactions send more tokens than a user has. This is a great system, and allows for incredibly secure and efficient transfer of value, and is one of the main reasons Bitcoin Currently stores more than 800 billion dollars of value. However, the system for trading between these currencies is very outdated
When a user wants to swap their bitcoins for another cryptocurrency, the mechanism to do so is full centralized, and processed by a major exchange like Coinbase. The way these transfers work is by having exchange specific funds on each network, and using a centralized database to transfer between them.
However, Ethereum is a fundamentally different protocol that allows for massive flexibility and generalization, all on the same secured and transparent blockchain. Ethereum has an address system where each address has information stored, but instead of just storing an ETH balance, addresses can store balances of tokens or NFTs, as well as any data a contract needs.
On the Ethereum network, there is the ERC20 Token Standard, which defines a standardized model for a token on the Ethereum blockchain. These tokens can store value, and exist as a cryptocurrency of their own, all while relying on the security of the Ethereum network. Swapping ERC20 tokens can be done through a centralized exchange like Coinbase, but there are also decentralized systems like Uniswap, which can exchange tokens without a middle man, and with reliable pricing and transparent fees.
The Ethereum network can track many different tokens, and each account can have different balances of each, and decentralized applications like Uniswap can automatically swap tokens between users, without the need for centralized services. The methods these systems use to track these tokens are standardized, and every ERC20 token has the following methods associated with its smart contracts.
This token standard allows for each token to have different functions, like governance and voting, or being tied to a videogame, but still be easily tradeable and swappable on decentralized applications. This generalization and standardization has allowed Ethereum to become a hub of decentralized finance applications, and serve as a value transfer system with almost limitless possibilities.
