It can be tough not to get lost in the jumble of letters and numbers when diving into cryptocurrency. From NFTs to ERCs, there are plenty of ways to get confused sorting out this ever-changing world of online exchange platforms.
Today, we’ll start with the Ethereum platform, and helping you to understand the ERC Token Standard.
Table of Contents
What Is an ERC to Begin With?
In its simplest terms, ERC stands for Ethereum Request for Comments. It is a document that, those writing smart contracts (programmers), use to put the rules of each Ethereum-based token on, making them a fact the token must comply with at all times. In short, an ERC is a list of rules.
Why The Numbers?
What’s in a name? To understand any ERC token standards, it is necessary to understand the naming conventions. We’ve defined ERC, but then there are the numbers.
A token is defined by the contract’s address, which is the number. It also includes the number of tokens available to its credit. The number can also be used to provide more details to users. Details include the token’s name, its symbol, and the number of decimals.
We will break each of those down further as we dive more into the meaning of tokens, and how they are used.
The ERC Location: The Ethereum Network
ERC tokens are all located on the Ethereum network, which is a decentralized platform based on blockchain technology. It was designed for the creation of, exchange of, and the security of digital assets.
Not to be confused directly with ETH, or Ether, the platform’s native currency, also uses an item called tokens. Tokens are smart contracts, and they are used to represent wide variety of digital assets. From vouchers or IOUS, to real world, tactile belongings, a token can be a placeholder of sorts for nearly any item or concept.
Tokens, therefore, require language or rules to be placed on them, so that they can be used as an equalizer of sorts.
A token, above all, is a representation of something else. It is something that stands in for that item, or represents it. For example, tokens are often used in digital asset transactions, because they are more secure.
You can imagine a basic online purchase. To do so, you typically find the item you want to buy, like a pair of shoes. To buy them, you enter your credit card information. To have them shipped, you enter your address. When you break it down, a lot of your personal information is put out on the worldwide web.
The ERC Token Standard
Now that you understand some of the underlying terms and concepts that make-up its process, it is time to dive into the concept of the ERC Token Standard. The basic way to consider an ERC is as a document. Programmers write the document. Programmers use smart contracts to do so.
What is contained in these virtual documents are the rules that govern what a token can and cannot do. It is the standard by which the token must behave. The tokens on Ethereum’s platform must comply to all rules set forth within the document.
Once created by the smart contract programmers, these documents must be reviewed. In order to review an ERC, there is a process for that, too.
The Ethereum Improvement Proposal
The Ethereum Improvement Proposal (EIP) is the process in which the Ethereum community reviews the ERC documents. The EIP describes standards for the Ethereum’s platforms. Some of those platforms include core protocol specifications, client APIs, and contract standards.
Network upgrades are not a part of the EIP process. These are instead discussed separately in what is known as the “Ethereum Project Management Repository.” That makes it all clear, right? We get it, it is a lot of technical mumbo jumbo to some, but we’ll keep breaking it down, one component at a time.
A Chance to Revise
Through the EIP process, the community will review ERC documents (or go over the rules, so to speak). Once reviewed, the community may comment on the document, and allow the programmer the prepared the document a chance to make revisions.
To Become an ERC
Once a revision is submitted, the Ethereum community will accept or deny the programming document. Some of them are accepted after the EIP process. If it is, it is then passed on to be finalized. From there, Ethereum developers implement it.
Once the document is fully implemented on the platform, it is officially an ERC. An ERC is, thusly, first and EIP.
While there is a laundry list of ERC token standards out there, one of the popular Ethereum token standards is the ERC 223. ERC-223 is a token standard that is powered by smart contracts. In short, the ERC 223 enables users to securely transfer incoming transaction actions to a digital wallet.
Technically speaking, the ERC-223 is an Ethereum token standard, powered by smart contracts, that enables users to securely allow token transaction to a digital wallet. It was initially created in order to fix a “bug” of the ERC 20.
Keeping Tokens Safer
ERC 223 is an expansion of the ERC 20. It is designed to protect Ethereum platform users from accidental contract transfers. These are sometimes called a “burn” of tokens, and was a known bug of the early versions of the ERC 20 tokens.
The “fix,” so to speak, was created by an Ethereum developer with the username of ‘”Dexaran.” Before the adaptation the ERC 223 allows for, there was a massive problem with the ERC 20 being “lost” in token transactions.
This was no small issue, as over $3 million was reportedly lost before the ERC 223 helped to change that fact. With the elimination of the risk, the token transaction process was able to grow in popularity. It became a more secure and safe option.
An Improvement on ERC 20 = ERC 223
The ERC 20 is the most popular and well-known of the ERC token standards. It is such because it is the token standard that for a fungible token to operate. This ERC contains the rules pertaining to transfer and balance tracking functionalities.
The ERC-20 token is used in most initial coin offering (ICO) transactions. It also allows for the standard API within a smart contract to be implemented. It was a useful tool, but it had its flaws (at least 3 million to be exact). That room for improvement introduced the ERC 223.
Adding an Extension
With the adoption of the ERC 223 token standard, the process allows developers to accept or decline the transfer of those ERC 20 tokens into a smart contract. If the transfer is declined, however, instead of burning the tokens, they are considered “failed.” In short, the ERC 223 allows for an address to address process, token transactions, as a function to be safer.
Without its use, those ERC 20 token transactions would cease to exist, which is how over $3 million in value was lost before its inception.
The Power of Choice = ERC 223
There is an option to reject tokens. The tokens would not burn. Because token transfers happen due to an exchange contract in the form of smart contracts, the incoming transactions are instead accepted or rejected by the receiver. The token balance will either be accepted at the receiving address or not. But they will not become lost tokens.
Eliminate the Risk
In the past, prior to the ERC 223 transfer function, the transfer tokens came with a risk. With its adoption, token transactions behave differently. It made token transactions easier.
In big words, the industry calls this former ERC-20 bug a “burning functionality implementation” but what it boiled down to in the real world is a potential risk at losing your ERC 20 token.
Avoid the Burn
Thanks to the adoption of ERC 220, those accidental burns don’t have to happen. Thanks to a decentralized exchange made possible by the Ethereum blockchain, unused tokens don’t just vanish.
A Work in Progress
The ERC 223 is just one example of the adaptability the online industry of cryptocurrency and digital asset transactions can display. While many will agree it is an ongoing work in progress, in an ever-changing space, there is hope.
Allowing for updates, changes, extensions, and overall “fixes” is just one way that the Ethereum ecosystem addresses this volatility. In short, we know it is not a perfect world, but we are trying to fix it.
Some may say this is a “building the plane as we fly it” mentality, but the use of the ERC223 token standard is an example that shows “the building” is still happening. Changes happen daily on these platforms, and keeping informed of them is the only way to truly keep up.
A Helping Hand
Thankfully, to stay informed of all the updates, EIPs, ERCs, NFTs and any other alphabet soup that the industry throws at you, you have a helping hand. FLOLiO has updated resources, informative articles, and research-driven data to keep you on top of the cryptocurrency marketplace.
Stay tuned in, and watch the growing field with its constant updates, by checking FLOLiO out on the regular.