Recently, initial coin placement (ICO) has become one of the most common methods of raising funds for launching and developing projects in the crypto-currency industry. Most ICOs use the Ethereum network as a platform, or, more precisely, the smart contracts of this network. ICO organizers usually accept ETH or BTC as payment, charging investors with tokens instead, which in most of the cases are ERC-20 based tokens.

ERC (Ethereum Request for Comments) is an official protocol for making suggestions for improving the Ethereum network; 20 - is the unique identification number of the offer. Technical specifications for tokens produced on the Ethereum block system were published in 2015.  Despite the fact that the ERC-20 tokens are functioning within the framework installed by the Ethereum command, this framework can also provide developers with greater flexibility in the process of the creation of them.

The ERC-20 standard defines a set of rules that must be met in order for a token to be accepted and able to interact with other tokens on the network. The tokens themselves are block-assets, which can have value and can be sent and received like any other cryptocurrency.

What was the reason for creating the ERC-20 standard?

Before the appearance of the ERC-20 standard, there were many compatibility problems between different forms of Ethereum-token, when each of them had a completely unique smart contract. In order to support a token for a stock exchange or wallet, developers each time were needed to write a completely new code. That's why supporting a growing number of tokens became increasingly problematic, taking too much time. A standard protocol for all tokens was created to solve this problem.

How do ERC-20 tokens differ from traditional cryptocurrency?

The difference of ERC-20 tokens from other known crypto-currencies like Bitcoin or Litecoin, is that they are bound to the Ethereum network, use the format of addresses received within this network and are sent using Ethereum-transactions. Accordingly, transactions involving ERC-20 tokens can be traced in the block browser.

What are the key functions of ERC20?

The ERC-20 standard defines a set of six basic functions that smart contracts in the ecosystem of Ethereum can understand and process. The basic functionality is registered in them, for example, methods of transfer of tokens and reception of the information on them.

Also, the ERC-20 standard defines two different signals that use each token and to which other tokens can react, which allows the smart contract to send messages to which the remaining smart contracts will respond. A set of functions and signals ensures that tokens of different types will behave identically in all parts of the Ethereum system.