Unless you’ve been living under a rock for the past decade, you’ve probably heard about cryptocurrency.
Built on blockchain technology, cryptocurrency uses cryptography to secure transactions and control the creation of new units. Cryptocurrency first emerged in 2008 when Bitcoin, the first decentralized cryptocurrency, was launched.
Since then, more than 4,000 additional cryptocurrencies have been developed. Most of these cryptocurrencies are open-source, decentralized systems based on blockchain technology.
As such, they have rules for how new cryptocurrency tokens can be created or “mined” – essentially using your computer to contribute the processing power necessary for keeping the network secure.
Cryptocurrency transactions are recorded on a digital ledger called blockchain, which uses complex cryptography to ensure that cryptocurrency can be securely created, stored, and transferred between individuals without the need for any third party (e.g., banks) or intermediaries.
While cryptocurrency has been exploding in value over the past few years, new users must understand the fundamental concepts and differences between all the different cryptocurrencies. One of those standards to learn is ERC-20.
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What Is ERC-20?
If you have spent much time looking into cryptocurrency, you may have come across the term “ERC-20.” ERC-20 is an acronym that refers to a unique cryptocurrency scripting standard that is used with Ethereum – a blockchain-based platform that allows the creation of smart contracts.
ERC-20 is a set of basic guidelines and functions that any new token created in the Ethereum network must follow.
As such, anyone creating a new token based on the Ethereum platform must ensure that their new tokens comply with these rules. In other words, ERC-20 is simply an interface or set of commands that determine how any cryptocurrency developed for the Ethereum network should behave.
It acts as a standard or protocol and defines six functions that can be used to manage new cryptocurrencies.
What to Know About ERC-20 and Cryptocurrency
Understanding ERC-20 and the scripting standards for cryptocurrency can be overwhelming, especially for those new to crypto markets.
However, a bit of a basic overview of why ERC-20 is important can help you make the best investment decisions and understand the future of blockchain currency.
- An ERC-20 token is a regulatory technology standard used for creating and issuing smart contracts on the Ethereum blockchain.
- Smart contracts can then be used to create digital assets that people can invest in.
- The Ethereum request for comment (ERC) standard was implemented in 2015.
- As more digital cryptocurrencies emerge, many are adopting the standards of ERC-20. Some of these include Maker (MKR), Basic Attention Token (BAT), and Augur (REP).
Why Is ERC-20 Important?
So what does ERC-20 mean for those wishing to buy and trade cryptocurrency?
ERC-20 is important because it means that users can trade cryptocurrency tokens standardized, no matter how the asset was created.
The ERC-20 standard helps anyone new to trading cryptocurrencies while also providing experienced traders with a more direct and simplified buying and selling process.
This can help those new to the markets understand how the currency is developed and better understand how to trade cryptocurrency more efficiently.