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Welcome to the cryptohunt jam where we spend one minute a day to explain crypto. In plain english.
Today, let’s learn about a powerful, yet technical concept that makes Ethereum so special, called ERC-20. You probably heard it and wondered what it is. It might sound intimidating, but don’t worry, we’ll break it down for you!
ERC-20 is simply the blueprint that makes all coins and tokens work on Ethereum. But how does that work and why is it important?
Standardizing how tokens work is important because it allows third parties to build wallets and other programs that can send, receive, and keep a balance of any token based on Ethereum. That is as important to crypto as inventing the credit card was for traditional money. Think about it: By defining the size and shape of the card, and how the magnetic stripe works, anyone with a reader can accept it.
ERC-20 does exactly that. It creates standardized ways in which tokens are created, sent between wallets, and how balances are reported. It’s a basic rulebook that let’s developers define what has to happen in each of these standardized events.
And while that sounds like engineering talk at first, it is what allows wallets like Metamask to exist, and let’s you transfer Ethereum based coins seamlessly between your various exchanges or among friends. Just like we have agreed on a system to mail letters – put them in a standard envelope, put postage and address in opposite corners, and drop them into the mailbox, ERC-20 does this for sending all kinds of money around.
And next time, we’ll talk about what public and private keys are.
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