ERC-20: What the Token?
There are cryptocurrencies and then there are those mysterious tokens everybody's buzzing about. If you've recently been curious to know what sets them apart, read on or forever hold your piece (of a Bitcoin.)
Digital currency, such as your piece of a Bitcoin, is usually native to a blockchain. If you're asking what a blockchain is - naughty naughty - go back and read my What is Blockchain post. Assuming we are on the same page, we know that blockchain technology relies on cryptography. It's easy to grasp the concept that the Bitcoin blockchain itself lets users store and transfer their coins on a p2p network. Similarly, there is Ether, which is the native currency of the Ethereum blockchain. Easy peasy stuff so far.
The main difference between Bitcoin and Ethereum is that the Ethereum blockchain can actually create smart contracts as well as decentralized applications (Dapps) which in turn use Ether to pay for the computational services provided by the Ethereum platform. So what about these tokens? Ethereum tokens, other than representing currency, can also represent a wide range of assets: securities, title deeds, gift certificates, gold and much more. Here is where you can get really creative with token assignment and value. These tokens can easily be exchanged or transferred between peers and the key part: it can all be done without using a middleman rendering the system fully decentralized. ERC-2O is one of the most significant token standards for Ethereum and it houses a set of rules for all Ethereum tokens (and ERC compliant tokens) to follow. The value of a token equals the agreed upon value of the asset that is attached to it.
In my next post, we'll dig a little deeper into token territory by taking a look at ICO's and how they work. Until then - TGIF!!!