Cryptocurrencies are virtual currencies backed by blockchain technology. Each cryptocurrency is either a coin or a token, depending on whether they are hosted on their own native network or not.
With that in mind, we define coins as any type of crypto that has its very own blockchain network. The list includes Bitcoin, Ethereum, Cardano, XRP, and so on.
On the other hand, we define tokens as cryptocurrencies hosted on another network.
Tokens are often encountered on decentralized smart contract ecosystems where developers build platforms, dApps, and all sorts of tools. Since all of these tools have a utility, they require a token to perform and regulate that activity.
Ethereum is currently the number one smart contract ecosystem. When interacting with Ethereum, investors often encounter an alien term known as ‘ERC-20.’ as the tokens themselves are referred to as ERC-20 tokens. But what does ERC-20 mean?
ERC-20 stands for Ethereum Request for Comment, which represents the official protocol for suggesting improvements to the Ethereum network. 20 is the personal identifier for the proposal, and it acts as a unique token standard for tokens developed on Ethereum.
Standardization is key in all technological sectors, and it is no different in the blockchain industry. For cryptocurrencies to seamlessly interact with each other, networks require a strict token standard that defines a set of rules for all tokens under that specific standard.
In the case of ERC-20, the token standard is used for wallets, exchanges, and dApps to be able to accept various tokens and facilitate exchanges between ERC-20 tokens without any issues.
Blockchain developers use smart contracts to program and define ERC-20 tokens. All ERC-20 tokens by design must possess the following functions in order to remain compliant with the native token standard:
Apart from ERC-20, several other token standards exist. All serve specific purposes and are either built on top of the basic ERC-20 standards or are built from the ground up. By utilization, the most popular token standards include:
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