ERC stands for “Ethereum Request for Comment.” This is Ethereum’s version of a Request for Comments (RFC), a concept devised by the Internet Engineering Task Force. Memos within an RFC contain technical and organizational notes. For ERCs, this includes some technical guidelines for the buildout of the Ethereum network.
This was written by Ethereum developers for the Ethereum community. Thus, the workflow of generating an ERC includes a developer. To create standards for the Ethereum platform, a developer submits an Ethereum Improvement Proposal (EIP). This includes protocol specifications and contract standards. Once that EIP is approved by a committee and finalized, it becomes an ERC.
The ERC-20 standard includes the following functions:
totalSupply(): returns total token supply
balanceOf(address _owner): returns account balance of _owner’s account
transfer(address _to, uint256 _value): takes in number _value and transfers that amount of tokens to address _to and triggers transfer event
transferFrom(address _from, address _to, uint256 _value): transfers _value amount of tokens from the address _from to the address _to, and triggers the transfer event
approve(address _spender, uint256 _value): allows _spender to withdraw any number up to _value amount
allowance(address _owner, address _spender): returns the amount which the_spender is still allowed to withdraw from the _owner
The following events are triggered based on the functions above:
transfer(address indexed _from, address indexed _to, uint256 _value): this is triggered whenever tokens are transferred
approval(address indexed _owner, address indexed _spender, uint256 _value): is triggered on any call to approve()
ERC-20 was proposed in 2015 and officially formalized in September 2017. It is a great starting point for token standardization. However, some in the developer community have noted that it has certain flaws and vulnerabilities.
A post by developer Dexaran describes these two scenarios in detail:
There are two ways of performing a transaction in ERC20 tokens:
- transfer function.
- approve + transferFrom mechanism.
Token balance is just a variable in the token contract. The transaction of a token is a change in the internal variables of the contract. The balance of the sender will be decreased and the balance of the recipient will be increased. The transfer function will not notify the recipient when the transaction occurs. The recipient will not be able to recognize the incoming transaction! I wrote this illustration of the process that is leading to unhandled transactions and money losses.
As a result, if the recipient is a contract, users must transfer their tokens using the approve +transferFrom mechanism. If the recipient is an externally owned account address, users must transfer their tokens via the transfer function. If a user makes a mistake and chooses the wrong function, the token will get stuck inside contract (contract will not recognize a transaction). There will be no way to extract stuck tokens.
His proposed solution to this issue is contained within ERC-223. It is very similar to the ERC-20 standard, but it solves the problems described above. When tokens are transferred to a smart contract,a special function of that contract is tokenFallback. This allows the receiving contract to decline the tokens or trigger further actions. This can be used in place of the approve function in most cases.
ERC223 provides a consistent way to handle incoming token transactions in smart contracts, empowering developers to create more innovative protocols.
Because ERC223 makes developers handle incoming transactions explicitly it protects consumers from sending tokens to a smart contract that doesn't support them. So far, this issue has resulted in more than $400,000 in various tokens to get irredeemably lost. With ERC223 this problem is in the past.
ERC20 prescribes a pull mechanism for retrieving the funds, especially when it comes to dealing with smart contracts. This means you have to pay the gas fee twice: first time to approve the transaction, and the second time to actually receive the funds. ERC223 manages to handle transactions without going through this lovely puzzle, so you only have to pay the fee once.