If you’re reading this page, you’ve probably heard the term ‘ ERC20* Token’ thrown around, especially in the wake of the recent boom in ICO funded blockchain start-ups.
‘ ERC’ stands for “Ethereum Request for Comments”. This is an official protocol for proposing improvements to the Ethereum network. ’20’ is the unique proposal ID number.
The tokens are digital assets that can represent anything from loyalty points to vouchers and IOUs to actual objects in the physical world. Tokens can also be tools, such as in-game items, for interacting with other smart contracts.
But put simply, a token is nothing more than a smart contract running on top of the ethereum blockchain. As such, it is a set of code (functions) with an associated database. The code describes the behavior of the token, and the database is basically a table with rows and columns tracking who owns how many tokens.
ERC-20 defines a set of six functions that other smart contracts within the ethereum ecosystem will understand and recognize.
These include, for instance, how to transfer a token (by the owner or on behalf of the owner) and how to access data (name, symbol, supply, balance) about the token. The standard also describes two events – signals that a smart contract can fire – that other smart contracts ‘listen’ for.