Select Page

In 2019, Initial Coin Offerings managed to raise over $1.97 billion so far, according to the statistics from TokenData. Once again, we saw that ICOs can be a powerful fundraising machine.

When conducting an ICO, a startup issues tokens, which run on top of a blockchain platform, to the investors. These tokens can be utility or security.

The main difference between them is related to the Howey Test. A token has to pass the Howey Test and be compliant with SEC to be considered as a security, while utility tokens aren’t regulated.

tokens howey test

And this brings us to the topic of our blog post: Utility and ERC20 tokens. Let’s find out more about them.

What are utility tokens?

utility tokens

Utility tokens are a type of digital currency built on their own blockchain platforms. They are probably the most popular forms of tokens in the crypto space. Utility tokens are created for crowdfunding purposes, and with them, ICOs managed to raise millions of dollars in funding.

When conducting an ICO, companies have to create a utility token. They represent access to the company’s product or service in the future. Then, during an ICO, the company gives away utility tokens to the investors.

Despite the fact that many ICOs managed to raise incredible amounts of money, utility tokens aren’t a guaranteed investment. And that’s what people often forget about.

Siacoin, a decentralized data storage marketplace, is an example of a utility token, just like the Filecoin, a data storage platform. When it comes to the most popular type of utility token, that’s definitely ERC20. Which leads us to the next question:

What is ERC20?

First, let’s answer the question, what does ERC20 stands for? E – stands for Ethereum, R – for Request, C – for Comment, and 20 is a number assigned to the standard.

ERC20 are tokens developed and used on top of the Ethereum platform. Fabian Vogelsteller proposed ERC20 as a solution for how new tokens would function within the Ethereum.

Most free airdrops are ERC20 based tokens.

ERC20 tokens

So, ERC20 tokens can be described as guides with regulations and rules that serve as a scheme for smart contracts built on top of Ethereum.

These tokens can be shared, transferred to crypto wallets, and even exchanged for other tokens. The ERC20 standard has six mandatory and three optional rules. The mandatory rules include:

  • Total supply
  • Allowance
  • balanceOf
  • Approve
  • Transfer
  • transferFrom

When it comes to the optional rules, they are:

  • Token name
  • Decimal, which can be up to 18, and
  • Symbol

Although ERC20 is one of the most popular types of utility tokens, people started to create and try out other tokens as well, such as ERC223 and ERC-777. However, ERC20 is still a standard and it isn’t going anywhere.

Wrap-up

Utility tokens, and as part of them, ERC20 tokens, made a great impact on the cryptocurrency space. So, I hope that this blog post has helped you to understand what exactly utility and ERC20 tokens are, and what their role is in the crypto world.

And, now it’s your turn: tell us in comments, what do you think about these tokens?