On the Ethereum network, ERC-20 tokens are a collection of 'fungible' digital tokens. Each token in the set is indistinguishable from every other token in the set, which is what fungible means. One US dollar is practically indistinguishable from every other US dollar in this way (at least in the digital realm). Each pair of ERC-20 tokens is distinguished by a ticker symbol such as ABC or XYZ. There may be a set of 1 million ABC tokens and a set of 10 million XYZ tokens, for example. The number of ERC-20 token sets is counted since the barrier to entry is minimal (it's actually simply a question of publishing a reasonably basic 'contract' to the Ethereum network). As a result, the number of sets is in the thousands. As a result, the vast majority of sets are worthless. Some, on the other hand, are worth billions.
ERC-20 is a technical standard that specifies a set of rules for transferring tokens, approving transactions, and determining the total supply of tokens. The ERC-20 standard was born out of a 2015 proposal that was incorporated into the Ethereum protocol via an Ethereum Improvement Proposal (IEP-20).
ETH is required to interact with ERC-20 tokens. For example, if you wish to send 100 ABC tokens to Susan, you'll need to pay for the transaction with a modest sum of ETH.
Smart contracts are used to create ERC-20 coins. Even merely for the generation of a set of tokens, the logic of smart contracts allows for several fascinating use cases. Consider a contract that can receive a maximum of 1000 ETH (that is, a total of 1000 ETH can be submitted to the contract), and the contract automatically'mints' and pays 100 ABC tokens back to the sender for every ETH received into the contract. This would "produce" 100,000 ABC coins, which would then be distributed to anyone who donated ETH to the contract. It's worth noting that this procedure is similar to an initial public offering of stock, in which a company's shares are issued and distributed to investors who have contributed.
ERC-20 tokens can also be used to represent loyalty awards and reputation points, among other things. Consider an online travel agency that rewards consumers with points every time they make a reservation on the platform. These points could be redeemed for future reservations. They may also provide holders with additional privileges like as VIP treatment, a percentage of the booking platform's fees, or even a say in how the platform is run.
Finally, actual objects such as gold or real estate can be represented by ERC-20. When digital tokens are used to represent tangible goods, however, maintaining the link between them is problematic.
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