Think of the ERC-20 as the universal language for tokens on the Ethereum blockchain. It’s a standard or set of rules that ensure all these tokens speak the same language, allowing them to interact seamlessly with each other and, more importantly, with smart contracts.
Two of the most popular tokens within the ERC-20 standard are the USDC and USDT tokens, but with a twist – they’re stablecoins. Unlike your usual tokens such as Bitcoin (BTC), Ether (ETH), and Litecoin (LTC) whose value fluctuates rapidly according to market trends, stablecoins are just that, “stable” – because they’re pegged to the US dollar.
ERC-20: How smart contracts work in blockchain
Seamless token integration: Fast and secure transactions
USDC and USDT are slowly becoming popular with business entities, with good reason.
Being pegged to the US dollar means that 1 token of the USDC or USDT is equivalent to 1 US dollar. The value only changes slightly depending on the strength of the dollar in the forex market. The stability of stablecoins and the power of the ERC-20 standard make USDT and USDC perfect for three use cases.
Imagine a business looking to pay some overseas contractors in cryptocurrency. Traditionally, the business might need to transfer funds from the bank account to a cryptocurrency exchange, then convert to the specific cryptocurrency needed for the payments. This process can be slow and may involve multiple fees.
With ERC-20 tokens integrating seamlessly with the Ethereum network, it allows for an instantaneous transfer of funds directly to contractor crypto wallets – no conversions and multiple fees needed.
Creating a safe haven in crypto
Parking your funds in tokens like Bitcoin and Ethereum can be risky because these are highly volatile assets. Agreements to be settled in Bitcoin can be worth 1 million dollars this week and 800,000 dollars next week – making it hard to do business.
The USDT and USDC tokens offer safety and stability, creating a safe haven in crypto for such business transactions. Instead of doing deals with Bitcoin and Ethereum and hoping prices don’t plummet the next day, deal makers can instead park their money in USDC and USDT during periods of volatility. This way, neither party’s purchasing power is eroded.
Other than securing the value of your holdings, smart contracts give investors the flexibility required to fully participate in the digital asset space. You can set your account such that some of your stablecoin holdings automatically convert to Bitcoin, when the price reaches a certain level. This conversion will happen without needing manual intervention, in an “if-then” execution system for smart contracts.
Fueling DeFi (decentralised finance)
Decentralised finance (DeFi) is a rapidly growing sector offering financial services like lending, borrowing, and earning interest, all without the need for traditional banks. For this sector to become an even more disruptive force in global finance, there is a need for faster and more reliable digital applications.
The USDT and USDC tokens act as the fuel for DeFi applications, where users can borrow against the tokens or use them as collateral when procuring loans. Smart contracts would then manage the interest payments and ensure that the tokens used as collateral are returned to the borrower upon servicing of the loan.
What the ERC-20 standard means for the global marketplace
ERC-20 smart contract tokens, like USDC and USDT, are a big deal because they are paving the way for a future of:
Increased trust
Where smart contracts remove the need for intermediaries, creating trust and transparency in transactions.
Enhanced efficiency
Manual processes that would take place in traditional finance are automated, saving time and money.
A more inclusive financial system
Banking won’t be a preserve for the savvy because anyone with an internet connection can participate in the global financial system, regardless of location or traditional banking access.
An important note on the ERC-20 standard
While the potential is massive, ERC-20, smart contracts, and stablecoins are still evolving. Security and regulation are ongoing considerations. It’s also important to note that while both the USDC and USDT are ERC-20 tokens, they also exist on other blockchains with different standards. For instance, USDT can also be found on the Tron blockchain using the TRC-20 standard. Therefore, it’s crucial to always double-check which network a specific USDC or USDT token resides on before sending or receiving them. Sending an ERC-20 token to a TRC-20 address could result in a loss of funds.
Gain a strategic edge in the dynamic crypto market by using stablecoins like USDC and USDT. Hold your funds in these reliable assets, immune to crypto volatility, and seize trading opportunities as they arise.
Disclaimer:
Trading is risky. Past performance is not indicative of future results. It is recommended to do your own research prior to making any trading decisions.
The information contained in this blog article is for educational purposes only and is not intended as financial or investment advice.
This information is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.
No representation or warranty is given as to the accuracy or completeness of this information. We recommend you do your own research before making any trading decisions.
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