‘ERC’ stands for “Ethereum Request for Comments. This is an official protocol for proposing upgrades to the Ethereum network. ‘20’ refers to the unique proposal ID number.

The ERC20 standard is fundamentally a particular set of functions which developers must use in their tokens to make them ERC20 agreeable. While this isn’t an enforced rule, most DApp developers are urged to pursue the standards to guarantee that their tokens can experience interactions with various wallets, exchanges, and smart contracts with no issues. This was incredible news for everybody since now they at least had an idea of how future tokens are required to act. ERC20 tokens have gotten a widespread endorsement and a large portion of the DApps sold on ICO’s have tokens dependent on the ERC20 standard.

So, what does a token need to have to be ERC20 consistent? It is essentially a set of 6 functions that can be recognized and perceived by other smart contracts, which thus leads to consistent interactions. Whenever executed, the following 4 essential activities are what all the ERC20 tokens required to do:

  • Get the total token supply.
  • Get the account balance.
  • Transfer the token from one party to another.
  • Endorse the utilization of the token as a financial asset.

Now that what are tokens and what exactly they do are learned, the next step is to learn how to create them and what rules they follow. But, a bigger question is, how exactly to get hands on them? When a new and exciting DApp comes along, how do to get a hand on its tokens? The answer is through the ICOs.

WHAT ARE ICOs?

ICOs or Initial Coin Offerings are essentially crowd sales, the cryptocurrency form of crowdfunding. The ICOs have been really revolutionary and have figured out how to achieve amazing tasks:

  • They have given the simplest way by which DAPP developers can get the required funding for their venture.
  • Anyone can become an investor in a project they are interested in by purchasing the tokens of that particular DAPP and become a part of the project themselves (Work Tokens).

HOW DOES AN ICO WORK?

The developer first issues a limited amount of tokens. By keeping a limited amount of tokens it is ensured that the tokens itself have a value and the ICO has a goal to aim for. The tokens can either have a static pre-determined cost or it might increase or decrease depending upon how the crowd sale is going on.

The transaction is a pretty simple one. If somebody needs to purchase the tokens, they send a specific amount of ether to the crowd sale address. When the contract acknowledges that this transaction is done, they receive a corresponding amount of tokens. Since everything on Ethereum is decentralized, an ICO is viewed as a success if it is appropriately well-distributed and a majority of its chunk is not owned by a single entity.

The DAO ($150 million) was the biggest ICO of all time until it was recently overtaken by Bancor ($152 million).

In the past 12 months alone a staggering $331 million dollars have been raised in ICOs.

HOW DOES AN ETHEREUM TOKEN GET ITS VALUE?

Now that it is known how to get hands-on tokens, next is to find out what gives them their value in the first place. Tokens get their value from a similar same place that most things get their value. Two factors shown below are the major ones:

  • Supply & Demand.
  • Trust

Supply & Demand: This is fundamental economics 101. More the demand and lesser the supply more will be the price of the product. The supply-demand graph looks kind of like this:

The spot of the intersection between both the curves is the equilibrium.

Shouldn’t something be said about the demand? It depends on a lot of factors. What is the nature of DAPP in itself? Is there excitement about the DAPP among people? Has that DAPP been promoted properly? Is that DAPP going to tackle issues? If the demand of the DAPP is adequately high, and with the supply staying constant, it is implied that the value of the token is going to be pretty high.

Trust: Like with any currency, tokens will possibly have value if people have trust in it. Trust comes from a lot of sources like the credibility of the developers, the sort of service given by the DAPP and so forth.

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Asma
Blockchain Research Analyst at Nvest
I am a BE graduate, specialized in Computer Science. Currently, pursuing ME in Computer Networks from UVCE. Also, I am working as a Blockchain Research Analyst at Nvest.
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