Monthly Archive: January 2022

What is an Initial Coin Offering (ICO)?

An initial coin offering (ICO) is a sort of capital-raising activity for cryptocurrency projects in their early stages.

During an ICO, a blockchain-based firm creates a limited number of its own native digital tokens and sells them to early investors.

While ICOs can provide a simple fundraising method and an innovative way for entrepreneurs to acquire funds, investors can also profit from both access to the service provided by the token and an increase in the token’s price if the platform is successful.

The primary benefit of ICOs is that they avoid intermediaries from the capital-raising process and establish direct relationships between the corporation and investors.

Furthermore, both sides’ interests are linked.

An initial coin offering (ICO) is a fundraising event in which a firm offers a new cryptocurrency.

Origins

It all started in 2013, when J.R. Willet, a software engineer, authored a white paper titled “The Second Bitcoin White Paper” for the token MasterCoin and raised $600,000.

Seven initiatives have raised a total of $30 million by 2014.

Ethereum was the largest that year, with 50 million ether minted and sold to the public, generating more over $18 million.

2015 was a more sedate year. A total of $9 million was raised through seven transactions.

In 2016, 43 ICOs raised $256 million, kicking off a surge in activity.

ICOs reached a new high in 2017, thanks in part to technical developments.

The issue of 342 tokens raised about $5.4 billion, propelling the idea to the forefront of blockchain innovation.

Telegram completed the biggest ICO to date. The UK-registered corporation raised almost $1.7 billion in a private ICO.

Types

  1. Private ICO: Only a small number of investors are permitted to participate in the process. Private ICOs often allow only accredited investors to participate, and a corporation might opt to establish a minimum investment amount.
  2. Public ICOs: A type of crowdfunding aimed at the whole public. Because almost anyone can become an investor in a public offering, it is a democratized form of investing.

How does an ICO Work?

When a corporation decides to hold an ICO, it publishes the date, regulations, and purchasing procedure ahead of time. Investors can purchase the new coin on the ICO date.

The majority of ICOs need investors to pay using another cryptocurrency, with Bitcoin and Ethereum being two popular options. There are ICOs that accept fiat money as well.

Typically, the purchasing procedure is transferring money to a specific crypto wallet address. Investors specify their own recipient address in order to get the cryptocurrency they purchase.

During an ICO, the quantity of tokens sold and the token price might be fixed or flexible.

  • Fixed number of tokens and price: The corporation determines both in advance, for example, selling one million tokens at a price of $1 per token.
  • Fixed number of tokens and a variable price: The corporation sells a fixed number of tokens and charges a variable price dependent on the amount of cash received.

A greater token price stems from more investment. If it sells one million tokens and raises $2 million, each token will cost $2.

  • Variable number of tokens and a fixed price: The corporation has a fixed price but does not limit the amount of tokens sold. As an example, suppose a corporation sells tokens for $0.50 each until the ICO concludes.

An ICO can be launched by anybody. Many new forms of cryptocurrencies are launched using this procedure due to the low barrier to entry.

ICO vs. IPO

ICOs are sometimes contrasted with initial public offerings (IPOs), which are fresh stock offerings by a private firm. Companies can raise capital through both ICOs and IPOs.

The fundamental distinction between ICOs and initial public offerings (IPOs) is that IPOs include the sale of securities and are subject to substantially tougher laws.

To launch an IPO, a firm must file a registration statement with the Securities and Exchange Commission and obtain its approval. A prospectus containing financial statements and possible risk factors should be included with the registration statement.

An initial coin offering (ICO) is the selling of a cryptocurrency rather than a securities. As a result, it lacks the formal criteria that IPOs do. However, if a corporation tries to circumvent the rules by holding an ICO for anything that meets the definition of a security, it may face legal consequences.

Advantages and Disadvantages

Online services may help with the creation of cryptocurrency tokens, making it extremely simple for a business to contemplate launching an ICO.

ICO managers produce tokens in accordance with the conditions of the ICO, receive them, and then distribute the tokens to individual investors by transferring the coins.

However, because ICOs are not regulated by financial institutions such as the SEC, monies lost due to fraud or ineptitude may never be recovered.

Early investors in an ICO are typically driven by the anticipation that the tokens will appreciate in value once the coin is launched. The prospect for extremely large profits is the key advantage of an ICO.

However, the legality of cryptocurrencies or digital assets is not assured.

The People’s Bank of China formally outlawed ICOs in 2017, deeming them harmful to economic and financial stability. In 2021, the Chinese government banned bitcoin mining and made all cryptocurrency transactions illegal.

What is a Decentralized Autonomous Organization (DAO)?

What is a DAO?

We have all heard about organizations. They are based in a certain nation, have a centralized management team that owns and governs the organization, and can have hundreds of thousands of members.

What if I told you there is a new type of organization? Can you picture coordinating with individuals from all over the globe without knowing each other, defining your own rules, and making your own choices all inscribed on a blockchain? DAOs are making this a reality.

A DAO, or decentralized autonomous organization, is a blockchain-based organization that is frequently administered by a native crypto token.

Anyone who buys and keeps these tokens has the opportunity to vote on crucial DAO-related issues. Smart contracts are often used in place of traditional corporate structures to coordinate the efforts and resources of many people toward common goals.

The primary distinction between a DAO and a basic interest club is that DAOs are entities with economic usefulness. Because they have their own governance tokens and treasuries, community members exercise caution while voting on how the DAO’s reserve money are spent, as well as other financial problems.

Finally, a DAO is totally managed by its individual members, who jointly make key choices concerning the organization’s destiny.

DAO is an organization that’s governed by code instead of leaders.

How do DAOs Work?

DAOs are designed to resemble a corporate structure, with rules and regulations developed using open-source code and enforced via smart contracts.

These smart contracts establish the groundwork for how the DAO will function.

They are very transparent, verifiable, and publicly auditable, allowing any potential member to fully grasp how the protocol will operate at each stage.

Following the formalization of these regulations on a blockchain, the next stage is to get finance. DAOs often go through a financing phase in which anybody who wants to participate can do so. Typically, funding is obtained by token issuance, in which the protocol sells tokens to acquire cash and replenish the DAO treasury.

Token holders are granted voting rights in exchange for their money, which are generally proportionate to their holdings.

The DAO is regarded live and active at the completion of the financing process, and all critical decisions about the organization are made by users achieving an agreement on ideas. Users get the capacity to vote on proposals by holding and locking cryptocurrencies into a voting contract, with the voting weight proportionate to the amount of cryptocurrency locked. The suggestion is then implemented in accordance with the specified network consensus rules, and voters are rewarded with additional cryptocurrency for their participation.

Why do we need DAOs?

Starting a business with someone that includes capital and money needs a high level of confidence in the individuals you are working with. But it is difficult to put your faith in someone you have only ever communicated with on the internet. With DAOs, you do not have to trust anybody else in the group; you simply have to trust the DAO’s code, which is completely visible and verifiable by anyone.

DAO membership

There are different models for DAO membership. Membership can determine how voting works and other key parts of the DAO.

  • Token-based membership: Depending on the token used, it is usually completely permissionless. Generally, these governance tokens may be freely exchanged on a decentralized exchange. Others must be earned by delivering liquidity or some other form of ‘proof-of-work‘ In any case, merely possessing the token allows you to vote.

  • Share-based membership: Share-based DAOs are more permissioned, but still quite open. Any prospective members can submit a proposal to join the DAO, usually offering tribute of some value in the form of tokens or work. Shares represent direct voting power and ownership. Members can exit at anytime with their proportionate share of the treasury.


Pros

  • No hierarchy: the community governs themselves
  • Democratic: anyone can raise a proposal and decisions go through majority voting.
  • Transparent: the code is open source for all to see.
  • Open access: Anyone with internet access could hold DAO tokens or buy them, this giving them decision-making power in the DAO.

Cons

  • Flat structure: Decision-making may be inefficient as majority vote is needed
  • No change: Difficult to change smart contract rules once deployed on the blockchain
  • Legality: Legal gray areas as DAOs are not bound to any specific jurisdiction

What is a Crypto Liquidity Pool?

A liquidity pool is a crowdsourced pool of tokens locked in a smart contract that offer liquidity in decentralized exchanges (DEXs) in an effort to mitigate the difficulties created by illiquidity in such systems.

Instead of traditional buyer-and-seller markets, many decentralized finance (DeFi) systems employ automated market makers (AMMs), which allow digital assets to be exchanged automatically and without authorization via liquidity pools.

Because each liquidity pool is made up of two tokens, they are also known as pairs.

A liquidity pool is a smart contract in which tokens are locked in order to provide liquidity.

How do liquidity pools work?

A liquidity pool, at its heart, is a smart contract that regulates the supply of two crypto assets, like USDC and ETH. This type of smart contract is known as an automated market maker (AMM).

Anyone who utilizes the above-mentioned pool to exchange ETH for USDC or vice versa is a member of this pool. When someone makes a deal, regardless of how much or how little they exchange, they pay a fixed cost.

To make this model function, the pool must have a constant supply of USDC and ETH, which is where liquidity providers come in.

A liquidity provider must deposit the same amount of USDC and ETH. We may imagine that many other liquidity providers are doing the same thing so that when someone wants to trade a token, they can do so easily.

When the liquidity provider adds their tokens to the pool, the underlying smart contract will return a “liquidity pool token” representing their stake. They also earn a part of the fees paid by traders who utilize the pool, which is proportionate to the amount of liquidity pledged.

The AMM smart contract that underpins the liquidity pool is constantly rebalancing, quoting prices based on supply and demand.

Liquidity pools seek to address the issue of illiquid markets by motivating users to supply crypto liquidity in exchange for a part of trading costs.

Why Are Crypto Liquidity Pools Important?

Any seasoned trader in traditional or crypto markets will warn you about the risks of investing in a market with minimal liquidity. Slippage will be an issue when attempting to enter — or leave — any deal, whether it is a low-cap cryptocurrency or a penny stock.

The discrepancy between the projected price of a trade and the price at which it is performed is referred to as slippage. Slippage is most prevalent during moments of extreme volatility, but it can also happen when a large order is completed but there is not enough activity at the targeted price to keep the bid-ask spread constant.

The bid-ask spread of the order book for a specific trading pair determines the market order price that is employed in times of high volatility or low activity in a typical order book model. This implies it is the price at which sellers are willing to sell the item and the price at which buyers are willing to acquire it.

Low liquidity, on the other hand, might result in increased slippage, and the executed trading price can greatly surpass the initial market order price, depending on the bid-ask spread for the asset at the moment.

Liquidity pools seek to address the issue of illiquid markets by motivating users to supply crypto liquidity in exchange for a part of trading costs.

Trading utilizing liquidity pool protocols does not need buyer and seller matching. This implies that users may easily trade their tokens and assets utilizing liquidity offered by users and transacted using smart contracts.

Uses of Crypto Liquidity Pools

  • Token Distribution: Liquidity mining is also a viable technique for distributing fresh tokens to the correct individuals in various crypto initiatives.
    Better efficiency is provided by the algorithmic distribution of tokens to users who have placed their tokens in the liquidity pool.
    Following that, the freshly produced tokens are allocated based on each user’s part in the liquidity pool.
  • Yield Farming: A way of earning tokens from your crypto holdings. It is been compared to farming since it is a novel approach to “produce your own cryptocurrency.” The procedure entails leasing crypto assets to DeFi in exchange for interest.
    The money in the liquidity pool are used to give liquidity to a DeFi protocol, which is used to allow trading, lending, and borrowing.
    The platform makes fees by providing liquidity, which are distributed to investors based on their part of the liquidity pool.
    Yield farming is often referred to as liquidity mining.
  • Governance:  The best liquidity pools could also serve as helpful instruments in governance. You could discover a potentially higher threshold of token votes required for establishing a formal proposal for governance. However, pooling funds together as an alternative could help participants rally behind a common cause perceived as significant for protocol. 

Advantages

The benefit of employing liquidity pools is that it eliminates the need for a buyer and a seller to agree to swap two assets for a defined price, instead leveraging a pre-funded liquidity pool.

As long as there is a large enough liquidity pool, transactions can take place with little slippage even for the most illiquid trading pairs.

Other users contribute the funds kept in the liquidity pools, and they receive passive income on their deposits through trading fees based on the percentage of the liquidity pool that they provide.

Risks

Impermanent losses are one of the most serious dangers associated with the liquidity pool.

Because of the volatility in a trading pair, liquidity pooling causes a temporary loss of cash for the liquidity providers.

The trading activity of the pool has a significant influence on the asset’s pricing.

Arbitrage traders might benefit from a fluctuation in the asset’s price in relation to the worldwide market price.

Furthermore, pricing algorithms in liquidity pooling may cause slippage difficulties for smaller pools.

Final Thoughts

Liquidity pools are the most current inventive technical intervention in the crypto sector.

They are critical to the viability of the present DeFi technology stack.

Liquidity pools may boost access and yield farming opportunities while also opening up new pathways in DeFi use cases.

On the other hand, they pose various hazards, such as temporary loss and over-reliance on smart contracts.

What is GameFi?

What is GameFi?

GameFi is a new concept in the gaming and blockchain businesses.

Traditional video game players who are familiar to paying to play an online game are drawn to blockchain video games where they might instead be compensated for their time and work.

What is GameFi?

The term GameFi is inspired by the term DeFi and stands for Game Finance.

GameFi refers to financial transactions in the crypto world that are based on games.

The term Play-to-Earn (P2E) is used outside of GameFi and may be considered synonymous with GameFi. Yet, P2E and GameFi do not have the same connotation.

While P2E refers to earning money by playing video games, GameFi encompasses much more. GameFi not only the system of making money by playing games, but also financial transactions and systems on gaming platforms.

To explain GameFi more clearly, there are staking, yield farming, etc. that exist in DeFi processes. We can say that it is the integration of financial transactions and NFTs into the gaming industry.

GameFi, in its most popular meaning, refers to decentralized apps (dApps) with monetary incentives. These are often tokens awarded as prizes for completing game-related activities like as winning battles, mining valuable materials, or cultivating digital crops.

It is critical to understand that GameFi is not a gambling site. To earn cash, the games to be part of this developing industry need players to use a combination of skill and strategy. Although chance plays a role in these games, it is not the most important element in determining who wins or is eligible for monetary compensation.

How do GameFi games work?

In these games, all objects are represented as NFT. Consider land plots, avatars, outfits, weapons, and gold bars. Once a player finds and accumulates these goods via gaming, they may trade them with others in digital markets for different NFTs or sell them for cryptocurrencies.

Depending on the game, players can boost their earning potential by spending time leveling up and upgrading their characters, building monetized structures on their property that other gamers pay to use, or competing in tournaments.

All NFTs and cryptocurrency transaction data are maintained on a public blockchain to keep track of what each participant possesses.

Today, GameFi comes in a variety of flavors. As a result, the ways via which gamers might gain cash from their games differ. There are, however, a few key elements worth addressing. To monetise the activity, many of today’s most popular blockchain games use a mix of the following characteristics.

  • Play-to-earn: Players in certain blockchain games are rewarded financially for accomplishing gaming objectives. The monies rewarded in these games are often derived from a reserve of native tokens kept within a smart contract.
  • Asset ownership: The notion of ownership of limited digital assets is central to many blockchain games today. Digital ownership of one-of-a-kind assets opens up previously unimaginable business potential. Owners can monetize their digital assets in the same manner that they may market their physical assets.

Bottomline

The GameFi concept outperforms existing online games.

As blockchain and NFT games hint to what is to come, the play-to-earn mechanism will eventually be the passport to widespread crypto adoption. So it is hardly surprising that this exponential trend shows no indications of abating.

If current trends continue, GameFi and NFTs will serve as a rallying point for DeFi.

Prospects for this new business are infinite, thanks to rising public interest and an injection of finance.

What is a Decentralized Crypto Exchange (DEX)?

What is a Decentralized Crypto Exchange?

Every person on the planet has heard about cryptocurrencies in recent years.

With the growing popularity of cryptocurrencies comes an increased interest in other digital financial transactions.

But, if you want to buy or sell cryptocurrencies, you will need a exchange.

A decentralized exchange, or DEX, is a peer-to-peer marketplace where cryptocurrency traders may conduct transactions without entrusting their assets to an intermediary or custodian.

To understand decentralized exchanges, first you should familiarize yourself with centralized exchanges. 

A centralized exchange is a platform where anyone may buy, sell, or trade cryptocurrencies that are listed on that exchange.

Assume you wish to acquire some Bitcoin.

You may visit an exchange, join up by supplying banking and identification information, and deposit some cash.
The exchange will tell you the price based on a “order book” of individuals buying and selling at various quantities, and you can then complete the transaction.

So, what comes next?

The exchange will display those Bitcoins in your account, and you may trade them for other tokens. But you do not truly own them since you are relying on the exchange to serve as a custodian on your behalf.

Any trade you perform, like as exchanging Bitcoin for Ethereum, takes place within the exchange’s database rather than on a blockchain.

The user’s coins are pooled into exchange-controlled wallets.

The exchange is in charge of your private keys

DEX supporters argue that the attractiveness of decentralized exchanges is security.

A centralized exchange can restrict your access to your cryptocurrency, limit or prevent your ability to trade it, and potentially leave you susceptible to hackers.

Centralized exchanges, on the other hand, are often considerably easier to use for newbies, and they may sometimes offer quick trading since they are not bound by blockchain technology.

How do DEXs work?

DEXs are constructed on top of blockchain networks and employ smart contracts to enable trade between individuals while retaining ownership of their currency.

Along with the trading cost, each deal incurs a processing fee.

Decentralized exchanges are classified into three types:

  • Automated market makers
  • Order books DEXs
  • DEX aggregators

Automated market makers (AMMs):

AMMs rely on blockchain-based services called blockchain oracles, which supply information from exchanges and other platforms to fix the price of traded assets.

Instead of matching buy and sell orders, these DEX’s smart contracts employ pre-funded asset pools known as liquidity pools.

Other users finance the pools, and they are then entitled to the transaction fees levied by the protocol for executing transactions on that pair.

To earn income on their cryptocurrency holdings, these liquidity providers must deposit an equivalent amount of each asset in the trading pair, a process known as liquidity mining.

If they try to deposit more of one asset than the other, the pool’s smart contract invalidates the transaction.

Traders can utilize liquidity pools to execute orders or earn interest in a permissionless and trustless manner.

These exchanges are frequently graded based on the amount of cash locked in their smart contracts, known as total value locked (TVL).

Order book DEXs

Order books compile records of all open orders to buy and sell assets for specific asset pairs. The spread between these prices determines the depth of the order book and the market price on the exchange.

There are two kinds of order book DEXs:

  1. on-chain
  2. off-chain

Every transaction in an on-chain order book is recorded to a blockchain.

That includes not only the transaction itself, but also the request to purchase or cancel an order.

It is the pinnacle of decentralization, but the requirement to place everything on a blockchain can make it more expensive and slower.

With off-chain order books, all of this happens elsewhere, with only the final transaction settled on the blockchain. Since orders aren’t stored on-chain, this method can run into some of the security issues of centralized exchanges but isn’t as slow or costly as on-chain order books.

It is vital to note that order book DEXs frequently have liquidity concerns.

Traders typically prefer centralized platforms since they are effectively competing with centralized exchanges and pay more costs as a result of what is paid to transact on-chain.

While DEXs with off-chain order books decrease these expenses, smart contract risks exist due to the requirement to deposit cash in them.

DEX aggregators

To overcome liquidity issues, DEX aggregators employ a variety of protocols and techniques.

These platforms effectively combine liquidity from many DEXs in order to minimize slippage on big orders, optimize swap costs and token prices, and provide traders with the best price in the shortest amount of time.

Another important purpose of DEX aggregators is to protect consumers from the price effect and to reduce the risk of unsuccessful transactions. Some DEX aggregators additionally employ liquidity from centralized platforms to give a better experience for consumers, all while staying non-custodial through interaction with certain centralized exchanges.

Why should you opt for DEXs?

Trading on decentralized exchanges may be costly, particularly if network transaction fees are high at the time the deals are made.

However, there are significant benefits to adopting DEX platforms.

  • Privacy: Because DEXs are anonymous, they should be your first choice if you desire total anonymity.
    Centralized crypto exchanges may request know-your-customer information, whereas DEXs operate on the premise of anonymity.
  • Token availability: Before listing tokens on centralized exchanges, they must be independently vetted to verify they conform with local rules.
    Decentralized exchanges may incorporate any token generated on the blockchain around which they are constructed, implying that new projects will likely list on these exchanges before their centralized equivalents.
  • Reduced security risks: Because all the funds in a DEX trade are housed on the traders’ own wallets, they are less vulnerable to a hack.

What are some potential downsides?

  • Requirement of specific knowledge: Users should be familiar with security principles in order to protect their cash in a DEX crypto exchange. Furthermore, you must have special expertise on the choosing of wallets as well as the funding of the wallet with appropriate tokens.
  • No customer service: Centralized exchanges function similarly to banks.
    They have consumers that they mostly wish to keep satisfied. However, there is no actor on the opposite end of a genuinely decentralized exchange.
    The protocol’s creators do not have the same connection with users. While there are entire communities of DEX users, you are alone responsible for your own finances.
  • Smart contract risks: Exploitable defects in smart contracts may evade extensive audits and detailed code reviews, causing more harm.
  • Unverified token listings: On DEXs, anybody can create a new token with the purpose of increasing liquidity. However, for investors, this may result in rug pull scams. As a result, traders must exercise extreme caution while validating tokens before to investing in them.

Final Thoughts

The first decentralized exchanges appeared in 2014, and their popularity grew in tandem with the rising popularity of DeFi.

DEXs have moved beyond their traditional order book model shortcomings thanks to the capabilities of the Automated Market Maker technology.

Decentralized crypto exchanges, on the other hand, have proven to be crucial venues for users to borrow cash for leveraging their holdings or give liquidity in return for trading fees.

DEXs have also allowed users to generate passive income from their cryptocurrency holdings by depositing them in liquidity pools.

On the contrary, the usage of smart contracts in DEXs continues to introduce dangers.

What is ERC20?

What is ERC-20?

Prior to the advent of Ethereum, every new coin required its own blockchain.

This put a lot of pressure on developers, who required time and money to build a network that could support their coin or fork an existing blockchain.

The introduction of Ethereum altered that, as it was the first project to operate as a development platform. This opened up a slew of new opportunities for blockchain technology and digital currencies alike.

Ethereum evolved into a platform for the creation of decentralized apps (dApps), smart contracts, and new coins. Soon after, a variety of token formats evolved, with ERC20 being the most popular and dominating.

ERC20 is an acronym that stands for Ethereum Request for Comment (ERC), with the 20 denoting a proposal identification on the blockchain. The proposal ID number specifies the collection of rules that must be followed in order for tokens with that ID to be generated, shared, or transferred, with the ERC20 list being the most extensively used set of protocols.

ERC20 was proposed in November 2015 by Ethereum developer
Fabian Vogelsteller

The standard specifies a set of criteria that must be fulfilled in order for a token to function effectively inside the Ethereum ecosystem. As a result, ERC20 should not be regarded as a piece of code or software. It is more accurately defined as a technical guideline or specification.

In other words, the ERC20 provides developers with a set of standards to follow, allowing for flawless operation inside the wider Ethereum ecosystem. ERC20 tokens are supported by a large number of decentralized apps and services, making it simpler for community members and companies to accept and utilize them on a wide range of applications (such as cryptocurrency wallets, decentralized exchanges, games, and so forth).

ERC20 is one of the most significant Ethereum tokens

What does ERC20 do?

ERC20 defines the functionality and protocols for coins created within its framework.

By describing how they must function, new tokens may be produced very quickly. In comparison to developing them on your own blockchain, it instills consumer confidence in the security of that token. According to Etherscan, around 470,000 token contracts exist under the ERC20 framework at the time this post is being written, owing to their relative simplicity of deployment.

ERC20 Standard Rules

If a smart contract want to use the ERC20 token, it must adhere to certain criteria called ERC standards. In other circumstances, if you do not follow the guidelines, it will not be appropriate to call it an ERC 20 token. There are now nine rules, six of which are necessary and three of which are optional.

The Mandatory Standards

  • totalSupply: specifies the total quantity of ERC20 tokens you intend to produce. To begin creating the token, you must first establish the entire supply of this token. You cannot, under any circumstances, create your own token on the fly since this will have a major impact on the value of these tokens.
  • allowance: The most significant function is the allowance function. In reality, when the contract wishes to carry out a transaction, it has to check the balance of the Ethereum smart contract to determine if the user has the required minimum amount. Using the allowance function, the contract can carry through or cancel the transaction.
  • transfer: The owner can use this function to transmit tokens to another address after determining whether the user has enough tokens to transfer. Furthermore, this behaves similarly to a conventional crypto transaction on other blockchain systems.
  • transferFrom: This function is mostly used to automate specific transactions.
    For example, maybe you have to pay someone the same amount every month, or maybe you have to pay rent and expenses. As a result, you may utilize transferFrom to schedule these payments for a certain day and time.
  • balanceOf: This function’s sole purpose is to return the total quantity of tokens held by any address. In reality, it serves as user information, so if you produced some tokens and sent them to other addresses, you can use this to see how many tokens you have left.
  • approve: The approve function aids in the elimination of token counterfeiting. Once the contract owner has checked the amount, he or she can approve the contract in order to receive the money. This approve function will also check to see whether the number is right in relation to the total quantity of tokens. As a result, counterfeiting tokens is impossible. If this function discovers any discriminates among the numbers, it will reject both the payment and the smart contract.

The Optional Standards

  • Token name: It is critical that the token be connected with a name or identity. Yet, you are not need to name them; however, associating identification with any token is beneficial when utilizing it within a community.
  • Decimal (Max: 18): It is actually pretty significant since it ensures the lowest possible value for your token. If the divisibility is zero, the lowest value is one; if it is two, the lowest value is 0.01. You can go up to 18 decimal places in this case.
  • Symbol: It is mostly used to create brand value via the use of catchy symbols, however you may not necessarily require a symbol for your coin.

ERC20 Advantages

The ERC20 standard has several advantages. It enables developers to create dApps on the Ethereum network. It also aids in the streamlining of the entire standardized procedure. Let us go over the advantages one by one to gain a clearer picture.

  • There is a standard protocol to maintain and follow.
  • Token implementation becomes easy for blockchain developers.
  • ERC20 tokens offer high liquidity.
  • Smart contracts ensure that transactions are risk-free.

ERC20 Disadvantages

  • Transfer function bug: Contract accounts and externally owned accounts are the two types of accounts in Ethereum. When attempting to engage with another externally owned account, just utilize the transfer function to transmit tokens.
    However, when its contract account is used, the transfer feature does not operate well, and you are likely to lose money.  But how exactly? When you use this blockchain technology to transmit money to a contract, the receiver is not alerted. As a result, they will not recognize it, and the token will be trapped within the contract, unable to be used. This is why you must utilize the approval + transferFrom functions. However, using these two might result in double-spending.
  • Low Entry Point: These standards, on the other hand, may be used by anybody to create tokens. There are no restrictions on who may and cannot attend. As a result, many people are producing unnecessary tokens that are flooding the market and, in many cases, creating fraudulent tokens to raise money.

The Takeaway

ERC20 is one of the most effective blockchain protocols. It is in charge of hundreds of tokens on the Ethereum network. It is also developer-friendly.

An ERC20 token may be created and released on the blockchain by anybody. ERC20 may also be used to create utility tokens for a dApp.

What is a Crypto Token?

What is a Crypto Token?

Token is a term that is frequently heard in the cryptocurrency community. In fact, you may hear Bitcoin referred to as a “crypto token” or something similar, because – theoretically – all crypto assets may be referred to as tokens.

Crypto tokens are programmable assets that may be created and stored on current blockchains. While they frequently have extensive compatibility with the network’s cryptocurrencies, they are a whole new digital asset class.

Tokens are units that are built on top of existing blockchains.

Tokens function within an existing blockchain to enable the development and execution of one-of-a-kind smart contracts, which frequently provide ownership of assets outside of the blockchain network. Tokens may be sent and received and can represent units of value such as electricity, money, points, coins, digital assets, and more.

Crypto tokens are a sort of cryptocurrency that symbolizes an item or a specific use and has its own blockchain.

How Crypto Tokens work?

To monitor transactions, blockchain employs a decentralized, or distributed, ledger that lives on a broad variety of independent computers. Each node organizes additional data into blocks, which are then chained together in “append only” mode. Because of the append-only structure, no one on any node can change or remove data from previous blocks. They can only contribute to the chain, which is one of blockchain’s primary security characteristics.

Cryptocurrency tokens provide an append-only safe record of cryptocurrency that is linked to a special-access contract that can connect to a variety of assets.

The token-based special-access contract can grant users access to assets like as cash, crypto coins, reward points, or even digital material such as music, art, a video clip, or a movie.

The tokens enable the ownership of a blockchain-verified private smart contract linked to that asset.

Coins Vs Tokens

While the terms “coin” and “token” are sometimes used interchangeably, they refer to different sorts of assets.

A crypto coin is often employed as the native coin of a blockchain, which is used to exchange cash, store value, and so on. Tokens, on the other hand, are not native to the blockchain on which they operate.

Crypto Token Types

Currently, there are four main categories of tokens

  • Payment Tokens: Payment tokens are the most well-known and extensively utilized types of cryptocurrency. These crypto tokens are used for buying and selling in the same way that the US dollar or the Euro are, only they are not backed by a specific government. Payment tokens are units of value that may be traded for other currencies that exist within the blockchain of crypto networks such as Bitcoin, Monero, and Ethereum. Third-party custodians or exchanges are also available to convert payment tokens into legal tender currencies such as the US dollar. People are increasingly utilizing these tokens to purchase products and services, albeit the aggregate number of retailers who accept them remains tiny.
  • Utility Tokens: These crypto tokens provide its owners with access to a product or service that is either now available or in the works. They are most typically employed as a fundraising mechanism for initial coin offers (ICOs), as a placeholder for the crypto currencies that buyers would get when the new coins go live on the network. The term for these tokens stems from the fact that they may be used to purchase an item or service from the issuer. Because they exist on an actual blockchain, their owners can be confirmed, and they can be readily swapped.
  • Security Tokens: Security tokens represent the rights and duties associated with securities such as stocks and bonds. A security token is often used to represent a stake of the firm that issued it. They can reflect legal ownership of an asset or a piece of an asset, such as real estate, stocks, exchange-traded funds (ETFs), and so on.

As a result, they are more strictly controlled than ordinary tokens. Companies may issue security tokens instead of traditional stock shares to raise funds more cheaply, or because the tokens provide immediate settlement and simpler cross-border trade.

  • Non-fungible Tokens: Also known as NFTs, these tokens have made the news lately because of the eye-popping sales prices of single NFTs connected with works of art, individual tweets, and sports memorabilia. They exist on pre-existing crypto networks, with ETH being one of the most popular. These tokens have private contracts that can be clearly distinguished from any other token in existence. Because of that feature, they are used by athletes, artists, musicians, and other creators as a way to connect with collectors, who see them as digital one-of-a-kind assets. Because the consumer may still reproduce the underlying material, they cannot copy, sell, or pirate it, NFTs have created new marketplaces for digital art and memorabilia. Some persons have also issued NFTs that provide ownership of non-digital assets that are one-of-a-kind, such as real estate.


Tokens can be used for investment purposes, to store value, or to make purchases.

The Takeaway

As the blockchain industry matures, the number of distinct digital assets will only increase to meet the diverse demands of all ecosystem members, ranging from business partners to individual users. Given that generating new assets in the digital world is less limiting than in the physical realm, these digital assets are widely predicted to change the way many sectors work, interact, and produce value, enabling a plethora of new social and economic possibilities.

Patricio Aguirre
Proactive Computer Engineer - Blockchain Enthusiast & Crypto Learner