If you are into ICOs and follow the latest trend regarding this popular way of crowdfunding, you have probably seen the term ERC20 many times. Usually, ICOs claim that their tokens are ERC20 compatible which somehow makes them more legit. So what does ERC20 mean? How does it affect new tokens?
Ethereum as a Game-changer
Before Ethereum came to be, there were just a couple of cryptocurrencies which were, in fact, just like fiat currencies and had no other purpose than that of paying for stuff. However, when Ethereum entered the game, everything has changed and the term token was introduced.
Calling Ethereum a cryptocurrency is a frequent mistake. As a matter of fact, Ethereum is a platform where developers can make decentralized applications and the main currency is called Ether. When making the applications, developers also create tokens which are also based on Ethereum and which can function in the Ethereum ecosystem.
The Difference between Currency and Tokens
Upon creating the app-specific tokens, the developers do not create a blockchain decentralized system of their own but use Ethereum system for that purpose. Therefore, the main difference between the term “token” and the term “cryptocurrency” is that the latter would also have a blockchain of its own, while tokens are based on Ethereum. icoguide.com