The ERC-20 is neither a form of technology nor a type of software nor a unique piece of code. Then what? It’s rather a technical specification that a new token on the platform implements. ERC-20 was proposed in 2015 by Fabian Vogelsteller (an Ethereum developer and author of many open-source projects including Ethereum’s Mist browser and the Ethereum Wallet) together with Vitalik Buterin (a co-founder of Ethereum and Bitcoin Magazine) as a technical standard for smart contracts on the Ethereum blockchain for implementing tokens. ERC in the title is an acronym for Ethereum Request for Comment, and 20 is the number that was assigned to the standard. The token standard refers to the rules that apply to every ERC-20 token on the Ethereum network and by which every token interacts with others on the network. There is a simple interface that allows the creation of tokens on Ethereum that can be re-used by other applications, from wallets to decentralized exchanges.
The innovative idea of Vogelsteller and Buterin spurred a new era of tokenized investment and crowd ownership since the ERC-20 token standard became popular with crowdfunding companies working on ICO cases. A crypto ICO (Initial Coin Offering) is a way for companies to raise capital and develop projects around decentralized applications. Its closest analogy is an IPO (Initial Public Offering) on a financial market, though there’s a number of significant differences. Due to the simplicity of deployment, together with its potential for interoperability with other Ethereum token standards, ERC-20 became a commonly used one between 2016 and 2018. Among the most successful ERC-20 token sales are EOS, TRON, Tezos and Filecoin, raising more than $200 million dollars each.
The newly launched tokens do not interfere with the existing projects on the network because the projects on the system and the new tokens are designed to be compatible. Most developers on the Ethereum network try to adhere to the standard rules meaning that most of the initial coin offerings launched on the network are ERC-20 compliant. Hence, the use of ERC-20 makes tokenization less risky. It brings uniformity to the network, reduces the complexity of token interaction and enhances token liquidity. Mind that Ethereum's native token, Ether, does not conform to the ERC-20 standard. To enable the ability to use ether on platforms requiring ERC-20 compliance, users can convert Ether to a "wrapped" token, commonly known as "WETH".
Download wallet now: