This question must have been encountered by many newcomers to the cryptocurrency world. Many tokens on the market are issued based on the Ethereum network, and most Tokens follow the ERC standard. Many people may ask why there are so many Token standards?
We know that the Ethereum network is decentralized and can support users in writing smart contracts. It has been introduced before, similar to the IOS or Android system on a phone. Many DAPPs can be installed and executed on Ethereum, and each DAPP is equivalent to an independent small system that requires Tokens for maintenance and operation.
This means that whenever a new smart contract application is developed on Ethereum, a new Ethereum token can be created. To simplify this process, Ethereum has set standards for tokenization. Depending on different standards, different types of applications will be tokenized, depending on the purpose of the application.
The most common Ethereum token standard currently is the ERC-20 standard, which is also the token standard for the vast majority of projects issued based on Ethereum. Of course, there are also ERC-223, ERC-721, and ERC-777 standards...
ERC-20 token standard:
On November 19, 2015, Ethereum released the ERC-20 token standard.
Why establish a token standard?
We know that when Ethereum was booming, thousands of developers flooded into the Ethereum network, various smart contracts and DApp projects were frequently launched, and the number of tokens based on Ethereum increased. Of course, some projects succeeded while others failed, but many tokens still hold value within a certain range. However, tokens need to circulate; circulation is essential for better development and value enhancement.
However, many project tokens lack a general standard, leading to difficulties in the circulation of tokens among different projects. Therefore, Ethereum created the REC-20 token standard to regulate the tokens issued on the Ethereum network and enhance the liquidity between currencies on the mainnet. This means that Ethereum has set a set of rules for the currencies published on its platform.
On the Ethereum network, digital assets issued based on ERC20 have liquidity and are easy to exchange. At the same time, different digital assets can perform the same functions on DApps in the mainnet, and this standard also makes tokens more compatible and allows digital assets to have additional functionalities.
Reasons why ERC-20 standard tokens became the mainstream token standard:
First, as the first version of the Ethereum protocol, while Ethereum was booming, REC-20 also became popular.
Secondly, ERC-20 marked the first real introduction of smart contracts into blockchain.
Third, the principle is simple, operations are easy, and applications are relatively common.
ERC-20 basically defines only six of the simplest functions for tokens - total token supply, account balance, transfer functionality, transfer source address, withdrawal approval, account balance check, and a few optional features like token name, symbol, and decimals.
Because the ERC-20 standard tokens became extremely popular, it also became a disaster zone. Many air coins and cx coins were developed based on the ERC-20 standard on Ethereum. From a purely technical perspective, these air currencies seem to have little value. From an economic perspective, air coins carry significant risks and must be carefully identified.