Among ICO token options, two stand out as being most important – ERC20 and ERC223. Below is an analysis of both, and the necessity of choosing a token wisely.
The ERC20 token has been the sort of ‘gold standard’ for the Ethereum token chain. The token standard has been helpful because it defines specific parameters which tokens must meet in order to be compliant with the Ethereum standard.
The standard demands that tokens be capable of a certain number of functions, which include transfers, approvals, balance requests, and three letter symbols. Below is a list of the specific details.
The benefits include less risk, more uniformity, reduced complexity, and enhanced liquidity, as well as certainty for investors regarding the stability and control of the tokens.
However, though the ERC20 token standard establishes a valuable baseline, there are also a number of areas where the tokens do not function as well as they could. There are three areas where tokens required improvement:
First, ERC20 are not able to handle incoming transactions in the receiver contract. Second, tokens which are sent to a contract that is not designed to work with tokens could be lost. Currently at least $400,000 have been lost. Third, the ERC223 tokens will fit within the Ethereum concept of uniformity. Whenever a user sends tokens, he must use the transfer function, whether for a contract or an externally owned account.
These limitations have led to the upgrade of the tokens to the new ERC223 protocol. The upgrade should reduce ambiguity in user actions, as all transfers will occur only with the transfer function. Further, developers will be able to handle transactions and reject non-supported tokens. Finally, because transferring ERC223 tokens is a one step rather than a two step process, gas consumption on the network will be reduced to a minimum.
The main advantage of the ERC223 tokens is that they are backwards compatible with ERC20 tokens. In other words, ERC223 tokens support all the functions of the ERC20 tokens, but are far more flexible. ERC223 tokens will work with ERC20 tokens, but ERC 20 tokens do not have that flexibility. Nevertheless, ERC20 tokens have been largely supported and maintained by the majority of the ICO community.
However, whether ICOs use ERC20 or ERC223, it is of critical importance that new tokens can interact with the larger ecosystem with mutual compatibility and exchangeability. The growth of the Ethereum network shows no signs of slowing, and for a token-backed project to have a viable future, the technology must be as robust as possible, offering the highest levels of functionality for investors and platform managers alike.