You might have heard of ERC-20 tokens, or that you can build cryptocurrencies on top of the Ethereum network – but what does that all mean? In this understanding Ethereum tokens guide we’re going to give you a clear breakdown of what that means exactly, what Ethereum tokens are, and how they’re all working to further develop the Ethereum and crypto industry.
Fundamentals Of Ethereum
Before we launch in, let’s cover the basics with a little recap on what the Ethereum network is all about. While Bitcoin was designed as an alternative payment system centred around peer to peer digital payments, Ethereum was created to offer developers a platform on which to build their own networks. Through the use of smart contracts anyone can build a decentralized application (dapp) that runs off the Ethereum network but has its own cryptocurrency.
This allows the blockchain industry to grow, strengthening the Ethereum network and native token ETH in the process. Learn more about the fundamentals of Ethereum here.
Understanding Ethereum Tokens
With the decentralized nature of Ethereum, anyone can create a dapp on the platform, relating to any industry they please. The concept runs similar to the Apple store providing a platform for iOS apps, allowing anyone to create one however unlike the Apple store the apps are not monitored and approved. Catering to a wide open pool of innovation, Etheruem created a number of token variations to adapt to various different use cases.
Ethereum tokens can be used to represent something valuable, like a one of a kind bag, something physical, like gold, or represent a medium of exchange, like a currency. Each token on the platform requires the following information before it is created:
- A total supply
- A name
- How many decimal places it can be broken down into
- A symbol / ticker
Each Ethereum token uses the Ethereum network to facilitate its transactions and will require gas in order to do so. These tokens are also traceable on the Ethereum blockchain.
The Different Types Of Ethereum Tokens
In looking at the different types of token standards you will notice that they all start with ERC. ERC stands for Ethereum Request for Comments and is followed by a number. This number will indicate what the token is capable of doing, and how it will interact with smart contracts and other dapps.
The most popular of the Ethereum token standards, the ERC-20 token can be used within the network and by other applications, like decentralized exchanges and wallets. In order to create an ERC-20 token there are a number of technical functions, such as total supply, transfer, etc. According to Etherscan, there are currently around 364,000 ERC-20 tokens in existence. The most popular ones include Binance Coin (BNB) with a market cap of $39 billion, Tether (USDT) with a market cap of $35 billion, and Chainlink (LINK) with a market cap of $10 billion.
ERC-223 are similar to ERC-20 tokens but with some additional features. These tokens incorporate tokenFallback technology which ensures that should the token be sent to a smart contract that does not work with that particular type of token, the tokens are returned to the original address. Currently, if an ERC-20 token is sent to an incorrect smart contract not capable of receiving it, the tokens are lost forever.
These tokens are non-fungible, also known as NFTs, meaning that they cannot be replaced or replicated. Unlike the fiat currencies where $10 has the same value no matter what combination of notes or coins you use, NFTs are unique in what they represent. These tokens are one of a kind and represent ownership over an asset. CryptoKitties is the perfect example of an ERC-721 token, an app that allows anyone to create a unique digital cat that could not be altered, destroyed or replicated. Another example of how ERC-721 tokens are being used/developed is in the luxury retail industry to allow buyers to verify the authenticity of their purchase. There are currently over 8,800 ERC-721 tokens according to Etherscan.
This is a revised version of the ERC-20 token standard that incorporates advanced features like offering users more control over their tokens and allowing operators to send tokens on behalf of other addresses.
Fueling The Crypto And Blockchain Industries
Considering that Ethereum (ETH) is currently the second largest cryptocurrency by market cap, it’s interesting that two other coins in the top 5 are in fact ERC-20 tokens. If you’re looking to buy ETH or one of the top ERC-20 tokens, you can do so on Oobit by buying as little as $20 with your credit or debit card. The process is simple, streamlined, and available to anyone.