What Is An ERC20 Token? – For Newbies

What Is an ERC20 Token

If you have been in the cryptocurrency space for any period of time then you have probably heard of an erc20 token. You have at least heard the name tossed around even if you aren’t sure what it means. If this describes your situation then you are exactly who I am writing this for.

What is an erc20 token exactly? What does it do? How does it work? How do you store them? These are all important questions that will be answered for you.

*Note: If you are looking information on the technical side of erc20 tokens and how they work this is not for you. In this article I’m putting things in laymen terms so that anyone can understand.


What Is An ERC20 Token?

To put it simple, an erc20 token is a cryptocurrency that runs on top of the Ethereum blockchain. There is no new blockchain technology with tokens like this. They simple are created through smart contracts on the Ethereum network.

The term “erc20” itself actually refers to a list of rules that must be implemented into the smart contract for everything to work out. It has become a standard when it comes to token creation on the platform but it is not an enforced standard.

So to sum everything up, an erc20 token is a token created by outside developers on the Ethereum network that is compliant with specific contract rules.


What They Can Be Used For

There are a plethora of different erc20 tokens out there, many of which are very different in nature. But at their core they are all cryptocurrencies and can be used to represent tangible, trade-able goods, or anything really.

For example erc20 tokens could be used as the monetary vehicle in a sort of rewards program, like frequent flyer miles. They could be used as a currency for gaming purchases, which could be similar to Xbox Live points. And the list goes on. They could represent many things of value that you could go on all day listing.

Some very popular erc20 token examples include VeChain (VEN) and Tronix (TRX). VeChain is a blockchain based supply management project that uses the erc20 token VEN as a currency on the platform to pay for business transactions. Tronix on the other hand is aimed at creating a decentralized content creation ecosystem that rewards content creators for doing good jobs in the form or TRX, the erc20 token. So they are extremely different as you can see.


Ether VS ERC20

Ether is described as the “crypto-fuel for the Ethereum network”. In a nutshell ether is the fuel that keeps the network running smoothly. It is the form of payment that goes to computers processing transactions and such that are what keep it all alive. Ether is needed by both developers who build apps on the blockchain platform as well as by users.

So ether is the native cryptocurrency on the Ethereum blockchain and as I described above, erc20 tokens are nothing more than tokens created in Ethereum smart contracts by outside developers.


Sending Tokens – BEWARE

There have been lots of funds lost due to sending erc20 tokens to the wrong addresses. What you want to do is send your tokens directly to your Ethereum wallet address just as if you were sending Ethereum there. Some people make the mistake of sending them to the specific token contract address and this results in loss of funds.

The reason for this problem is because the tokens contract only tracks and allocates funds. If you send tokens to a wallet address, as you should, the contract will automatically update the balances.

There are solutions to this problem being worked on but as for now play it safe and send to the ETH address.


How To Store ERC20 Tokens

ERC20 tokens can be stored in any full-fledged Ethereum wallet.

MyEtherWallet is probably the most popular out there. This wallet is a “client side interface” that easily allows people to create their own wallets in which they can store the private keys to. Its a safe and easy way to interact with the Ethereum blockchain.

If you want to play things more safe you can get yourself a hardware wallet like TREZOR. TREZOR is a USB-like device that keeps your private keys “un-hack-able”. This is what I use and what you should probably think about using if you are holding a lot of funds.

The nice thing about erc20 tokens is that there are a lot of them and that you can store them all in one place. For example I’m currently holding about 10 or so erc20 tokens and I have them all in 1 wallet along with my Ethereum. This makes things a little more convenient but on the flip-side its also a bit more worrisome thinking if something would happen it.

As always, leave any questions or comments below and I’ll get back to you soon 🙂

About the author

Mr Hodl

Hi, My name is Kyle but as the creator of this site I go by "Mr Hodl". After my first encounter with Bitcoin back in 2015 and becoming increasingly intrigued with the new emerging world of cryptocurrency, I thought it would be a good idea to create this site to provide guidance to others who are involved or looking to get into it. I hope you find my site helpful and thank you for stopping by!

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