What is an ERC-20 Token?

ERC-20 token
The Ethereum network is the platform for many altcoins.

It is easy to forget, amid the hype around altcoins as investments, that they are also programs, and you can run programs on top of programs. That opens the door to some fascinating functions, such as the ERC-20 token.

Think of ERC-20 like a contract that meets a specific set of requirements. In the standard financial world, you have dollars, pounds, and other currency and assets, and then you build contracts on top of that financial system. When you buy a car, rent an apartment, sign a client agreement, or use a credit card, all of those are contracts built atop an underlying financial system. ERC-20 tokens are built on the Ethereum network and they meet all the functions required in the ERC-20 protocol.

Ethereum was designed to be a virtual computer/marketplace. ERC-20s can be used as digital contracts for real-world assets, to create incentive-based markets where users stake an investment of tokens on their product’s quality, and in a host of other ways large and small. In fact, it is likely with some altcoin systems that trading the altcoin will soon take a back seat to other functions, much the same way modern banks trade financial products more than they deal in individual deposits of cash.

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