Tokenization definition, when applied to data security, is the process of substituting a sensitive data element with a non-sensitive equivalent, referred to as a token, that has no extrinsic or exploitable meaning or value.Wikipedia
The notoriety of the ERC20 tokenization definition, is given last year with many of the ICO (Initial Coin Offering) that were carried out, where a considerable number of companies raised millions for their new projects.
The ICOs of new projects became very popular with investors looking for new opportunities in the crypto-money market. These ICOs offered the ERC20 token in exchange for Bitcoin, Ethereum or some other crypto currency for fundraising. However, this year, although they continue to be carried out and enthusiasm continues, participation has decreased due to changes in the focus of the investors themselves and some corrections made to the process.
What is an ERC20 Token?
ERC-20 is a token belonging to the Ethereum decentralized platform of intelligent contracts. Its name means, Ethereum Request For Comments and the number 20 is established as a standard identification to differentiate it from others.
These tokens, which are built on top of the Ethereum Blockchain, are standard protocols that regulate the emission of new tokens into the network, which means that all new tokens must meet certain rules and parameters for acceptance. The goal and need for this standard, apart from creating a parameter to follow, is to create interoperability between tokens and encourage improvements in the Ethereum ecosystem.
Obtaining the total supply of tokens, obtaining the balance of the account, transfer capacity of the token and the possibility of spending it, are some of the standard functions that must be fulfilled for the incorporation and interaction of new tokens. Although not all other tokens comply with these features, they can still be compatible and interact with the ERC20 in some functions, depending on their capabilities.
ERC20 tokenization definition
This token being a digital asset like any other, can also be marketed in a similar way to Bitcoin, Ether or any other cryptoactive. Adding also, that their transactions can be tracked in the same way as a cryptomoneda, in the Blockchain of Ethereum.
Differences between a crypto currency and an ERC20 token.
In a previous occasion, the topic that explained the concept of token in the sector of the cryptomonedas had been treated, for this occasion we will approach, as it differs this particular token of any other cryptomoneda, like the bitcoin or the ether.
The main difference is that the ERC20 token does not have its own blockchain like the cryptomonedas, it circulates in the chain of Ethereum blocks. Considering this, any transaction involving the token, will be made and depend on the Ethereum network, which also makes it necessary some GAS as a fee, to perform operations with the token on its platform.
Tokenization definition. Why is the ERC20 standard important and what are its benefits?
The key to the ERC20 token is its standard set of rules that allow interoperability in the Ethereum ecosystem, with the wide variety of tokens and other decentralized applications compatible with each other.
These rules and standards will allow developers to create new technologies with a reduced margin of error, being aware of the conditions necessary for them to integrate and coexist in the network.
The use of this token allows new projects to use the Ethereum Blockchain to drive their projects, since most if not all of the initial currency offers are made on this platform.
The creation of the ERC20 token as a standard has brought numerous benefits to the ecosystem and the development of new technologies, optimizing its incorporation and compatibility with the rest of the applications.
Tokenization definition. As some of these benefits we can mention:
The unit of technology and a standard protocol, facilitating the work to the developers.
Less complexity in understanding each type of tokens implemented, since all will be based on the same principles of functionality.
Greater liquidity of the ERC20 tokens, as they are used in a large part of the ICOs and as a working base for the projects.
Less risk of breaking contracts, as there are no impediments or incompatibilities.
The uniformity provided by the standard features of the token to the network, also generates ease of exchange between users, dispensing with intermediaries in transactions.
Portfolios compatible with ERC20 tokens
Since most ICOs are carried out with the use of this ERC20 token and the Blockchain Ethereum, it is essential to have a compatible and secure portfolio to store them, if at any time we participate in one of them.
There are a great variety of alternatives as for portfolios that support this token, being a hardware the most optimal and safe version, but other free ones are also available.
Here are some of the most recommended wallet options for storing this token.
Ledger Nano S
There are currently a large number of ERC20 tokens in the Ethereum Blockchain, which means that the standard has had a good impact on the development of other tokens and decentralized applications that interact on the network.
On the other hand, in addition to simplifying innovation for developers, creates a space for the possibility of fraud through the implementation of ICOs through the facility provided by this protocol, so it is advisable to be careful in the future when participating in an offer of a new project.
Its value will be established over time according to the usefulness provided, but so far has been a great contribution to the Ethereum platform and development activity in the ecosystem as such.