ERC20: The Behemoth Token Standard
Ethereum, the leader of altcoins, seems to have surpassed the definition itself. One aspect of Ethereum’s ecosystem is the ERC20 token standard, and it has shaped the crypto-world in unimaginable ways. With the ICO boom and now the DeFi craze, more and more ERC20 tokens are minted every day. But every year or so, there’s a new ERC token in town. It’s always rumored to be the token that usurps the ERC20, and it always fails to do so. Time and time again, ERC20 outperforms other token standards in scalability, interoperability, simplicity of formulation, and ease of deployment.
A token standard is sort of like a mandatory guide for DApps to reference when creating tokens for their project. ERC20 is the most popular token standard as of late. The blueprints, or rules, specified in ERC20 help to develop a sort of outline for smart contracts regarding token creation on the Ethereum platform. ERC stands for “Ethereum Request for Comment” while “20” is the number of the ERC20 request itself. It is one of the many topics found within the Ethereum Improvement Proposals (EIP) section of Ethereum’s GitHub, a collective hub for devs to propose improvements of current Ethereum concerns. The community proposed and then created these core token standards in ERC20.
ERC20 tokens play a huge part in how the Ethereum platform operates, and as mentioned above, are created by smart contracts for DApps. They usually either act as currency for the project, loyalty points earned in situations specified by the smart contract, as shares in the company itself, and more.
They also operate as the language that all tokens use on the Ethereum network, which is why they can be shared, swapped for other tokens, and transferred between crypto-wallets with ease.
But, like anything that is the first of something, ERC20 still has quite a few issues.
Problems With ERC20
It’s biggest issue is arguably the bug that can cause the loss of money between users in transactions — a critical problem that resides in its smart contract. In fact, because of this bug, the Ethereum ecosystem has lost millions of dollars. Developer “a_mature_dev”, explains it like this:
“Essentially, an ERC20 Tokens does not literally move from one wallet address to another (or smart contract to smart contract); only the so-called owner of the ERC20 is changed inside the Smart Contract that is the issuer of the ERC20. In simple sense, if someone in Monaco has allocated a Ferrari in my name, a transfer would just be like the Ferrari stays there, only the name of the owner of that Ferrari is changed from my name to (lets say) Spider-Man. Now, sadly our dear Friendly Neighbourhood Spider-Man was not informed of this and thus, was NOT made aware.”
To read more about ERC20 and its shortcomings, check out this article by Dexaran, who analyzes the ERC20 standard in-depth.
Many new token standards have stepped up to the plate in an effort to remedy some of these issues, but none have ever been quite as popular as ERC20. In fact, as of October 2019, over 200,000 ERC-20-compatible tokens exist on the Ethereum network.
Created by Jordi Baylina, Jacques Dafflon, and Thomas Shababi, ERC777 is the latest token standard of interest. It’s certainly more flexible than the ERC20 standard. It’s interoperable with ERC20 tokens (which is a necessity, given that the majority of tokens are ERC20 tokens). Editable smart contracts, the authorization of funds by the actual user, as well as the ability to cancel funds — the ERC777 is amendable. It allows parties to add additional properties to the token system at a later date. This can come in handy for functions like check processing, recovery services, or membership payment management services.
But… Will ERC777 Kill ERC20?
First, it was ERC777. Then, back in 2018, it was the ERC1155 and ERC1404 that were rumored to upset the leading ERC. It’s our professional opinion that if it hasn’t happened already, it probably won’t happen. After all, ERC777 isn’t perfect. Gas costs are expected to rise, which will cause transactional costs — which account for most smart contract operations — to also rise.
Truthfully, we don’t have a crystal ball, but we can recognize a pattern. Still, that doesn’t mean the ERC20 standard is in the clear. Ethereum devs and users have been very vocal about their distaste for ERC20, so a new token standard may very well come along and “kill” ERC20. Although, we wouldn’t recommend holding your breath.
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