Cryptocurrency 101 Technology

How the ERC-20 Standard is Redefining Blockchain Technology

May 15, 2018


How the ERC-20 Standard is Redefining Blockchain Technology

The ERC-20 provides a standard against which all new digital currencies on the Ethereum blockchain are created. This means that it is not a technology but rather a set of guidelines that facilitates the integration of multiple currencies into a single platform. Any new token created on the Ethereum network has no option but to conform to these rules so as to function on its platform.

Even though there is a lot of controversy surrounding the cryptocurrency industry in general, the role of ERC-20 as an emerging blockchain standard is becoming clear.


One of the major reasons behind the ICO explosion in the past year is because of the ERC-20 standard. This feature is inherent on the Ethereum blockchain upon which most ICO projects develop their platforms.

The ICO sector makes the most use of the ERC-20 token standard and is one of the prime reasons for its popularity. In order to understand why a majority of ICOs are launched on the Ethereum platform using the ERC-20 standard, we need to consider why building applications on the bitcoin blockchain could be difficult.

Bitcoin was intended to be a currency network which means that its underlying program is essentially a ledger. This makes it possible to set up a BTC wallet but challenging to write new programs on top of it that can control the use of other tokens.

Before the inception of ERC-20, every new token had to be created hand in hand with a verification system to enable transactions. This made all tokens innately different and thus incompatible.

On the other hand, the ERC-20 standard makes it possible to integrate all functions of a new token onto the Ethereum blockchain. For transactions to take place using the standard, the network in question only needs to send the smart contract regarding the token owner’s change of address.

Simplifying Currency Exchanges and Digital Wallets

The use of a common standard for all tokens on the Ethereum network has simplified the job of developers on cryptocurrency exchange platforms. In the past before the standard came into effect, incorporating a new token into an exchange platform required a serious investment of time and effort.

Developers had to study the codes underlying each token’s protocol and create a link between them so as to enable communication. The same process would have to be undertaken in order to create a wallet for every new token. It is easy to picture the complexities that would arise from the creation of new tokens at the current pace.

The ERC-20 standard has simplified this process. All new tokens that adhere to the standard have the same exact code which means that they can communicate with ease. This makes it easy to incorporate new coins into exchange platforms. It is also the reason why all ERC-20 based tokens can be stored on common wallets.

Interoperability within the Blockchain

Every token is immediately compatible with all others on the Ethereum network. This interoperability lays a foundation for major developments within the blockchain-based industry. It has made it possible to tokenize almost anything and apply the benefits of the technology in numerous spheres of life.

This has made it possible to realize the dream of moving from legacy structure to the blockchain technology by use of distributed ledgers. The ERC-20 standard makes it easy to transfer data and digital assets across networks without the need to build complex links when the systems in question operate on its inherent protocol.

The common substructure has made it easy to accelerate this growth and holds a promise of a bright future for blockchain-based industries.

Creating New Business

Even though Ethereum is only a few years old, it has managed to grow significantly thanks to its disruptive token framework. But the glory is not limited to the network alone as it allows for many more businesses to be founded on this core principle.

In addition to making it possible to raise funds through token sales, the standard also makes it possible to sustain new business models on the blockchain. These tokens serve as digital assets for the platforms and allow for trading. This enables them to appreciate in value and provide sustainable commercial models for both the network creators and investors.

Even though the ERC-20 standard has been in existence since 2015, it was only in September 2017 when the Ethereum team formally adopted the protocol. Before this, new token developers could opt to use it or not but it is now a requirement for all Ethereum-based tokens.

Truly, ERC-20 tokens have played a dominant role in ICOs as well as the cryptocurrency market in general. Considering the numerous advantages that they have to offer, they might just be the technology needed to spur the inevitable mainstream adoption of the blockchain.