As AI assistants evolve, GPT-5 and Claude Sonnet 4.5 stand out as the most capable large language models yet. Dive in and see how they stack up.
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2025 has been a defining year for AI. OpenAI’s GPT-5 and Anthropic’s Claude Sonnet 4.5 have raised the bar once again, each one aiming to blend stronger reasoning, longer memory, and more autonomy into one seamless system. Both are built to handle coding, research, writing, and enterprise-scale tasks, yet their design philosophies differ sharply.
This breakdown explores how the two stack up across performance, reasoning, coding, math, efficiency, and cost, helping users and teams decide where each model truly shines.
A Quick Overview
Claude Sonnet 4.5 builds on Anthropic’s refined Claude family. It extends memory across sessions, handles million-token contexts via Amazon Bedrock and Vertex AI, and features smart context management that prevents sudden cut-offs. It can run autonomously for 30 hours on extended tasks, making it ideal for ongoing workflows.
Meanwhile, GPT-5 is OpenAI’s flagship successor to GPT-4, tuned for agentic reasoning, where the model plans, executes, and coordinates tools on its own. Its adaptive reasoning system dynamically chooses between shallow or deep “thinking” paths, letting users balance speed, cost, and depth per task. GPT-5 also offers specialized variants (Mini, Nano) for lighter workloads.
Reasoning and Analysis
Both models far exceed their 2024 counterparts, but they differ in how they reason.
GPT-5’s deep-reasoning mode significantly boosts performance in multi-step logic, scientific, and spatial tasks. It can break problems into chains, test sub-hypotheses, and self-correct mid-process. However, disabling this mode reduces accuracy sharply, it can be brilliant when “thinking deeply,” but more variable when not.
Claude Sonnet 4.5, by contrast, stays stable even without added configuration. It’s particularly strong in financial, policy, and business logic, where structure and coherence matter more than creative leaps. For enterprise Q&A or decision support, that predictability is valuable.
If you want an AI that reasons steadily, Claude takes the lead. If you need exploratory logic (i.e. complex hypothesis testing or cross-domain synthesis) GPT-5’s deeper path is unmatched.
Math and Structured Problem Solving
As seen in the benchmarks provided by Anthropic, Claude Sonnet 4.5 continues its consistency streak. Whether calculating directly or using Python tools, it achieves top-tier math accuracy. This means it handles structured logic even in constrained environments.
GPT-5 also reaches near-perfect accuracy, but only when tool use and reasoning depth are active. Disable them, and results drop noticeably. It relies heavily on its reasoning pipeline to stay sharp.
Verdict:
- Claude Sonnet 4.5: dependable out-of-the-box math solver.
- GPT-5: flexible but needs tuning to perform at its best.
Coding and Software Engineering
When it comes to coding, the two models diverge in style.
Claude Sonnet 4.5 delivers stable performance without special tuning. In tests resembling HumanEval+ and MBPP+, it maintains high accuracy across conditions, making it dependable for production pipelines. Its strength lies in consistency, results rarely fluctuate, which is crucial for enterprise use.
By contrast, GPT-5 achieves higher peak scores when its advanced reasoning is enabled, especially in multi-language or large-project contexts. In JavaScript and Python refactoring tasks, for instance, it outperformed Sonnet when its “high-reasoning” mode was active — though baseline runs without that mode varied more.
For agentic coding, where the AI calls external tools or terminals, Sonnet 4.5 often executes with fewer dropped commands. GPT-5, on the other hand, can chain more tool calls simultaneously, making it better for complex orchestration, provided you configure it carefully.
Verdict:
- Claude Sonnet 4.5: predictable, steady engineering partner.
- GPT-5: versatile powerhouse, but performance hinges on setup.
Cost and Efficiency
GPT-5 is clearly cheaper per token, particularly for large inputs. Its adaptive router also saves compute by running simple prompts on lighter paths.
Claude Sonnet 4.5 charges more but maintains predictable latency, a key factor for production environments that value reliability over marginal savings. For very large prompts, its cost rises faster than GPT-5’s, though batch discounts narrow the gap.
TL;DR: GPT-5 wins on price and scalability, whereas Claude wins on timing consistency and stability.
Pricing for Premium Plans
Beyond API access, both OpenAI and Anthropic offer premium subscriptions for individual users, which differ in features and pricing.
ChatGPT Plus, powered by GPT-5, is priced at $20 per month, giving users priority access to GPT-5, faster response times, and early access to new features and memory. OpenAI’s unified ChatGPT experience also includes file uploads, image generation, and custom GPTs.
Claude Pro, meanwhile, costs $20 per month as well and grants access to Claude Sonnet 4.5, offering faster responses, higher rate limits, and longer context windows. While it lacks built-in multimodal tools, Claude focuses on text clarity and structured reasoning, appealing to researchers, analysts, and writers seeking dependability over versatility.
TL;DR: both Plus plans are tied in price; what sets them apart, however, is their offering.
Different Strengths for Different Needs
It’s tempting to crown one “best,” but GPT-5 and Claude Sonnet 4.5 serve different priorities for different users and teams.
- Claude Sonnet 4.5: best for reliability and sustained performance. If you want consistent outputs and clear memory behavior, Claude delivers.
- GPT-5: best for depth, flexibility, and scalability. When configured properly, it surpasses rivals in creative reasoning, multimodal integration, and adaptive tool use.
Most teams may find the strongest setup is multi-model, using Claude where consistency matters most, and GPT-5 for data-intensive workflows.
Ultimately, these aren’t just chatbots anymore, they’re full-fledged digital collaborators, each with distinct personalities. Claude Sonnet 4.5 is your calm, methodical analyst. GPT-5 is your ambitious polymath. Which one you pick depends less on their individual benchmarks and more on your mission.
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As you navigate the waters of the cryptocurrency market you're likely to come across a term called "coin burning". In this article, we're exploring the process used to manage the token supply of projects, a means for companies to manually alter the supply (and thereby demand) of a token's circulating supply. While not adopted by every project, coin burning has proven over the years to be successful in increasing the price of a digital currency.
What Is A Coin Burn
Diving right in, a coin burn is the process of removing a certain number of tokens from circulation by sending them to an invalid address, a "black hole" of sorts. This process is written into the project's code and implemented at various increments as outlined in the whitepaper. While Bitcoin doesn't make use of coin burning, many projects on the Ethereum network, particularly ERC-20 tokens, have been known to implement it.
Through the use of a smart contract, also known as a burn function, the network would remove a specified number of tokens from circulation, decreasing the total supply and thereby (hopefully) increasing the demand. Coin burns have been known to lead to an increase in price, as the supply-demand ratio is altered.
An Example Of Coin Burning
A top 10 cryptocurrency project underwent a coin burn last year that is believed to be the biggest layer 1 token burn to date. 88.7 million LUNA, the native coin to the Terra project, were burned in November 2021 following a vote by the community. This was effectively worth $4.5 billion at the time. A few days following the coin burn the LUNA token hit a new record high.
The burn aimed to remove value from Terra’s community pool, but in reality, it simply moved the value from the pool to the individual holders of the cryptocurrency.
Bitcoin Cash and Stellar are two other high profile cryptocurrencies that have made use of the coin burning initiative. Shiba Inu is another cryptocurrency to have undergone a coin burn, although this wasn't the initial intention of the project. The project's developers gifted half of the SHIB supply to Ethereum creator Vitalik Buterin, who went on to donate 10% and burn the remaining 90%.
How Does Coin Burning Work?
Should a project wish to implement a coin burn they will need to create a smart contract. Smart contracts are digital agreements that execute when certain criteria have been met. Say a project wants to implement a coin burn every 200,000 blocks, they will create the burn function to include this instruction.
When this milestone is achieved, the coins will automatically move from the designated wallet to a wallet address that does not have a private key. Without a private key, these coins can never be recovered. The coins will then be sent from the one wallet address to the other and effectively be removed from circulation. The transaction (burn) will be added to the network's blockchain records and be available to view through the blockchain explorer.
The Downside To Coin Burning
Before you invest in a project that undergoes coin burning it is important to note that coin burning does not guarantee an increase in the coin's price. The increase in price will depend on the network, the market climate and the current sentiment. During the Shiba Inu coin burn, while the price rose considerably, it soon returned to a more stable and substantially lower level.
Coin burning can also be used by ill acting developers to deceive the community. Say a project has a total supply of 100 million tokens and allocates 10 million to the platform's developers. They could then burn 40 million tokens, increasing their hold to 60% of the circulating supply on the network.
As with all transactions conducted on the blockchain, all payments are irreversible meaning that once you burn coins they can never be recovered.
What Is Proof Of Burn?
Not to be confused with coin burning, Proof of Burn (PoB) is a consensus mechanism similar to Proof of Work and Proof of Stake. The model utilizes an element of coin burning in its mining practice and is known to use considerably less energy than its PoW counterpart.
The process requires miners to burn tokens in order to participate in the mining process. The more coins burned the more blocks they can create, meaning the more rewards (in the form of transaction fees) they can earn. Miners are still required to use mining hardware. The benefit of this is to provide a less energy-intensive blockchain network that can run optimally through a network of decentralized mining participants.
In market terminology, a bull market is a period of generally rising prices and investor optimism. The term "bull market" comes from the market that rises steadily and consistently like a healthy bull. A bear market is the opposite: It refers to a condition when prices are falling and investors are pessimistic about future market value. Historical market cycles are well defined and provide a good understanding of market trends.
It's all about cycles
The market cycle helps investors to know whether they should invest or hold back their crypto coins. To avoid making wrong market choices, investors should know market cycles so they can decide whether the crypto market is on the rise or not.
The market cycle helps people to know when the market is already booming and ready to take a plunge. This helps traders to decide which crypto coin to buy at its lowest value, hold it until market bull cycle and then sell it to make a very good profit.
The Bull Market:
A Bull market is a long run of increasing prices and investor optimism where buyers outnumber sellers. As the market bull cycle goes on, more investors will see the market as their opportunity to buy low and sell high. The result is a market cycle that is not as steep as it had previously been.
The Bear Market:
A Bear market is the opposite of a Bull market where prices are falling and investors have low expectations for future market values. The market cycles are frequently broken up into bull markets and bear markets. This market cycle happens when market prices fall and investors sell their coins, this causes market prices to drop even more until the trend reverses.
The case of the Dead/flat market
A Dead market is a term used to describe a period of time where there is not much movement in either direction but it is not a market downturn by any means. This market cycle can occur after prolonged market cycles such as bull (rising trend market) and bear (falling trend market).
The market is not a straight line, it goes up and down so even though the market has gone on for a considerable time without any market fluctuation, market volatility will eventually return.
The market can be dead for a long time but it could cause worry within investors so they should know where market cycles stand.
Since market cycles are consistent it is better to be ready for market volatility, this will help you make informed market decisions when market cycles return.
In conclusion: the market cycle is a repeating market trend that describes market fluctuations over time. When market prices increase, it is called a bull market; when prices fall, it's called a bear market. Knowledge of market cycles is an important asset for investors in the crypto market as the knowledge of swings, downturns and upturns can help make better-informed decisions with investing in cryptocurrencies.
Du har säkert stött på begreppet fiatplånbok i kryptovärlden – men vad betyder det egentligen?
I den här guiden reder vi ut vad en fiatplånbok är, varför man använder den, och hur du själv kan komma igång.
Vad är en fiatplånbok?
En fiatplånbok är ett digitalt konto där du kan lagra, skicka och ta emot traditionella valutor, alltså fiatvalutor – precis som på ett vanligt bankkonto online.
Många kryptobörser erbjuder fiatplånböcker tillsammans med kryptoplånböcker, för att göra det enklare för användare att snabbt köpa eller sälja kryptovalutor utan att invänta långsamma banköverföringar.
Fiatplånböcker förekommer även inom fintech, där användare kan få ränta eller andra förmåner på de pengar de förvarar i plattformens e-pengatjänst. För att tillhandahålla fiatplånböcker krävs en e-pengalicens, vilket säkerställer att tjänsten regleras enligt lag.
👉 Fiatvalutor är statligt utfärdade valutor – som amerikanska dollar, euro, brittiska pund eller svenska kronor – och styrs av centralbanker i respektive land.
Hur fungerar en fiatplånbok?
En fiatplånbok fungerar på liknande sätt som ett traditionellt bankkonto. Den stora skillnaden är att den ofta finns på en kryptobörs eller en fintechplattform och inte är ansluten till en fysisk bank.
Till skillnad från kryptoplånböcker, som hanterar digitala tillgångar på en blockkedja, innehåller fiatplånböcker vanlig valuta (t.ex. SEK eller EUR) – precis som på ditt vanliga bankkonto.
Användare kan:
- Göra snabba köp av kryptovaluta utan att vänta på banköverföringar
- Växla mellan fiat och krypto inom sekunder
- Få ränta eller belöningar beroende på vilken plattform som används
🔐 Viktigt att notera: Fiatplånböcker är inte kopplade till någon blockkedja – de är helt utanför kryptosystemet och fungerar som en brygga mellan traditionella banker och kryptotjänster.
Varför använda en fiatplånbok?
Många använder fiatplånböcker av ett enda skäl: snabbhet. Banköverföringar kan ta flera arbetsdagar, vilket kan skapa problem för dig som vill:
- Reagera snabbt vid stora prisförändringar på kryptomarknaden
- Skydda din portfölj vid hög volatilitet
Tänk dig att priset på en kryptotillgång plötsligt faller över natten. Utan pengar i din fiatplånbok måste du vänta på att en banköverföring ska gå igenom – och då är priset troligen redan ändrat. Med en fiatplånbok på plats hade du kunnat köpa direkt och dra nytta av tillfället.
📈 På kryptomarknaden handlar det ofta om sekunder – och då kan en fiatplånbok göra stor skillnad.
Är mina pengar säkra i en fiatplånbok?
En fiatplånboks säkerhet beror helt på plattformen som tillhandahåller den.
De flesta seriösa aktörer, som kombinerar krypto- och fiatplånböcker, använder:
- Krypterad dataöverföring
- Tvåfaktorsautentisering (2FA), t.ex. lösenord + biometrisk inloggning eller engångskod
- Regelverk för e-pengalicenser för att följa lokal lagstiftning
Säkerhetsnivån i en fiatplånbok är alltså jämförbar med den i kryptoplånböcker – och i många fall lika hög som hos digitala banker.
Så här använder du fiatplånböcker i Tap-appen
Med Tap-appen kan du enkelt sätta in pengar i en reglerad och säker fiatplånbok.
Så här gör du:
- Gå till Startskärmen
- Välj Cash Wallet
- Välj den fiatvaluta du vill ladda (t.ex. EUR eller GBP)
- Välj mellan banköverföring eller betalkort
- Genomför transaktionen
💡 Dina pengar kommer att visas i fiatplånboken så snart banken bekräftat överföringen. Därefter kan du:
- Använda dem för att köpa kryptovaluta
- Växla mellan valutor
- Eller låta dem ligga kvar som en kontant reserv
Du kan också ta ut pengar från fiatplånboken till ditt bankkonto när som helst – direkt i appen.
What is Return on Investment?
Return on investment is one of the most common measures of profitability and performance in both business and personal finance. It shows how much gain or loss you’ve made on an investment compared to its original cost.
In simple terms, ROI tells you whether your money has worked for you or not. Whether you’re investing in stocks, property, a business project, or a marketing campaign, ROI helps you compare how efficiently different investments use your capital. It’s widely used by companies to evaluate new projects, advertising performance, or expansion opportunities, and by individuals to assess savings, portfolios, or real estate ventures.
A clear ROI provides insight into the effectiveness of a decision and guides future strategies, whether the goal is increasing profit, cutting costs, or improving financial performance.
All investments, including stocks, bonds, real estate, and small businesses, come with the goal of making more money than you put in. The money you earn over and above your initial investment is called profit. As you’ll learn later, profit and ROI aren’t the same thing. When discussing investment profitability, however, people often use ROI. This metric expresses the amount of net profit one earned as a percentage of what the initial investment was.
ROI can help you assess if buying property or investing in a business is worth it. It also helps companies determine the value of adding new products, building more facilities, acquiring other businesses, advertising campaigns, etc.
In other terms, it's a way to compare different investments in order to figure out which ones are worth pursuing. For example, you could calculate ROI to decide whether selling one stock and buying another would be a good idea.
While there is no limit to a return on investment theoretically, in practice, no investment is guaranteed to have any return. If your ROI is negative, it means you not only failed to make a profit but also lost some of your original investment. The worst possible outcome would be -100% ROI, meaning you completely lost your initial investment. An ROI of 0% signifies that you at least recovered the money you put in, but gained nothing beyond that.
While ROI is often used as a marker of profitability, it isn't foolproof. There are several limitations to calculating ROI as your only measure which include the time frame in which you will earn back your investment, inflation rates, how risky a venture is, and additional maintenance costs that may be incurred.
ROI Terminology
Before we dive in, let's first cover some basic terminology.
Net profit or net income
Net profit is the amount of money left over after all operating costs, such as the cost of transaction costs or maintenance costs, and other expenses have been accounted for and subtracted from the total revenue. It is used to measure profitability. Net profit can also be called net income, net earnings, or the bottom line.
Total cost of investment
This figure will look at the amount of money invested in a particular investment.
How to Calculate ROI: The ROI Formula
The ROI formula is a simple equation that looks at the price change of the asset and the net profits (the initial cost of the investment minus its value when you sell it). When calculating ROI you would use this formula:
ROI = (Net Profit / Total Cost of Investment) x 100
To factor trading costs into your ROI figure, you'll use:
ROI = ((Value of Investment - Cost of Investment – Associated Costs) / Cost of Investment) x 100
As an example, let's say you buy 5 shares of $100 each in Tesla, equating to $500. You sell them a year later for $150 each, equating to $750. Let's say you paid $5 commission on each trade, costing you $25 in trading fees.
ROI = (($750 - $500 - $25) / $500) x 100 = 45%
This means that you made a 45% return on investment on that particular investment.
What is a Strong ROI
A "good" return on investment is any number above 0, as this means you made some profit. However, the ideal ROI should be higher than what you could've earned had you chosen another investment (the next best thing).
To compare this, investors often compare their earnings to what they could've made on the broader stock market or in a high-yield savings account. Using the S&P 500 as a control, over the past four decades it has made gains of around 7% (after inflation). An ROI is generally considered to be a strong one if it beats the stock market in the long term.
However, risk and return are directly linked. High ROIs often come with higher volatility or uncertainty. Property, stocks, and startups may yield better returns but can also result in losses. Safer investments, like savings accounts or government bonds, tend to offer lower but more predictable ROIs. Moreover, it's always important to note that past performance does not equate to future results.
Therefore, a strong ROI will vary depending on the investment's level of risk, your goals, and how much risk you're willing to take.
ROI vs Profits
ROI and profit are related but not identical. Profit is the absolute amount of money gained after costs, while ROI expresses that profit as a percentage of the original investment.
For instance, a $1,000 profit might sound good, but if it came from a $100,000 investment, the ROI is just 1%. That’s why ROI is a more useful metric for comparing opportunities or assessing performance across projects.
Use ROI for decision-making and benchmarking; use profit for understanding absolute earnings.
Benefits of Using ROI
Return on investment (ROI) is widely valued for its clarity and practicality. It allows both individuals and businesses to assess whether their financial choices are creating real value, providing a clear, quantitative foundation for better decision-making. It remains one of the simplest and most effective tools for:
- Comparing investments as it standardises performance across asset types.
- Guiding decisions, where it is used to prioritise projects or marketing strategies.
- Measuring performance by tracking financial efficiency over time.
- Allocating resources by showing where capital yields the best results.
Its simplicity and flexibility make it an essential concept in finance, marketing, and project management alike.
Where the ROI Formula Falls Short
The main limitation of using this return on investment ROI formula as a marker of success is that it doesn't show how long it took to earn the money back. When comparing various investments, the time it takes to mature will have a significant impact on the profits you could earn.
For instance, a year loan versus a bond held for five years versus a property held for 10 years will all have varying ROIs once you've established how long it will take to earn the specified ROIs.
In this scenario, the ROI calculations mentioned above skimp on the full story. It also doesn't account for risk. For instance, the loan repayments could be delayed or the property market might be in a slump, all affecting the potential profits earnable.
With many variables, it becomes harder to predict what the exact ROI calculation on an investment will be, so be sure to factor this in when using the return on investment ROI formula to determine how attractive an investment opportunity or business venture is.
ROI Alternatives
Although the return on investment doesn't consider how long you keep an asset, it's essential to compare the ROI of investments held for comparable lengths of time as a more clear performance measure. If that's not possible, there are a few other options.
Average Annual Return
Also known as annualized return on investment, this adjusts the ROI formula to factor in the timing. Here you would divide the ROI by the number of years you hold the asset.
Compound Annual Growth Rate (CAGR)
This option is more complicated but yields more accurate results as it factors in compound interest generated over time.
Internal Rate of Return (IRR)
This measure factors in the notion that profits earned earlier outway the same profits earned later, taking into account interest that could've been earned and factors like inflation. This equation is quite complicated but there are online calculators one can use.
Conclusion
A return on investment (ROI) is a formula used to calculate the net profit or loss of an investment in percentage form. The ROI calculation can present valuable information when investing capital or determining profitability ratios. The ROI equation looks at the initial value of one investment and determines the financial return. A negative ROI indicates that the investment returns were lower than the investment cost.
You've likely come across the term "token" in your crypto ventures, or heard Bitcoin and Ethereum described as a token, but what does this all mean? In this article, we're breaking down what a token is, and how to distinguish a coin from a token and how it can be used as a tool to store value.
Token Definition
A token, in the cryptocurrency sense of the world, represents a particular asset or utility. It's worth noting in this item that tokens and cryptocurrencies are terms often used interchangeably however they technically differ. Tokens typically fall into one of the following three categories:
Payment tokens
These tokens allow users to purchase goods and services outside of the blockchain, offering an alternative currency.
Security tokens
Similar to initial public offerings (IPOs) on the stock market, security tokens offer users an ownership stake or entitle the holder to dividends in a blockchain project.
Utility tokens
Utility tokens offer users access to a service within a particular ecosystem, similar to loyalty points on a Starbucks card. These points hold value within their own ecosystem but cannot be used outside of that.
Coins vs Tokens
Getting more technical, when exploring coins vs tokens, tokens are categorised as crypto assets that have been built on top of another blockchain while coins are built on their own blockchain.
Ether, for example, is the native token to the Ethereum blockchain, however, the platform allows developers to create a range of token standards on top of it. Based on this information, all ERC-20 tokens are therefore categorised as tokens as opposed to coins.
USD Coin (USDC) and Tether (USDT) are therefore tokens as they are built on top of the Ethereum blockchain. While each network is operated by its own leadership, both use Ethereum's blockchain to facilitate all transactions.
How Are Tokens Traded?
Much like coins, tokens can be bought, sold and traded on exchanges, or sent directly from one wallet to another. This is facilitated by blockchain technology, in the same way that coins are transferred from one location to another. Unlike coins, which are all fungible in nature, tokens can sometimes be non-fungible, meaning that they are not identical in value and function.
Tokens are sent using the wallet address of a recipient's blockchain-compatible wallet. The address is often represented by a barcode in the form of a QR code, or through a lengthy alphanumeric code. All transactions take place from the wallet holding the tokens and are sent directly to the wallet of the recipient without the need for a centralized authority like a bank. Tokens can typically be bought on exchanges, often with Visa or Mastercard, or exchanged between users.
How is an NFT Different from Cryptocurrency?
Non-fungible tokens (NFTs) are all different from each other as they each represent a real-world object, whether a digital piece of artwork or a bottle of fine wine. Bitcoin can be traded for anything around the world, whereas NFTs are unique in nature and while they hold value they cannot be used interchangeably.
What Are NFTs Used For?
NFTs are used to represent a particular asset, whether it be physical or digital. When minted, these tokens will permanently represent that asset and cannot be changed. For example, one NFT could represent an apartment in London while another could represent a song by Kings of Leon. The possibilities are endless, and the marketplaces are huge.
Users can easily trade NFTs on marketplaces (through a website or mobile app) such as OpenSea or Rarible. Once you own an NFT you are credited with the ownership rights of the asset the NFT represents. Due to the nature of blockchain technology, this is permanently displayed on the network's public ledger for anyone to review. This process ensures that the ownership of an NFT cannot the changed and the information is available for anyone to credit.
Note that several blockchain networks currently support the minting of NFTs, and the holder will need a wallet specific to that blockchain in order to hold the NFT.
Are Tokens Regulated?
When it comes to regulation, countries around the world are currently drawing up legal frameworks to better implement cryptocurrencies into our current financial system. This includes the likes of tokens.
Once cryptocurrencies are regulated by government authorities, they could provide the world with unrealized use cases like being used to manage a prescription at a pharmacy or clinical services or to provide feedback to IT support. While there are plenty of tokens available on the market today, it's likely that this is only the tip of the iceberg in terms of their potential to improve issues faced around the world.
You've likely come across the term "ERC-20" in your crypto endeavours, with plenty of these token standards currently ranked in the top 10 (even top 100) cryptocurrencies. But what does ERC-20 actually mean, and what is a token standard? In this piece, we're uncovering everything you need to know about these popular crypto terms.
To start things off, ERC stands for Ethereum request for comment.
What is a token standard?
Let's start at the beginning. When Ethereum was created to provide developers with a platform on which to build decentralized apps (Dapps), the team incorporated several token standards.
These token standards allow new projects to create, issue and deploy various functioning tokens on the blockchain. Each token standard is a smart contract that holds a set of particular "rules" that must be followed in order to be created.
In recent years a number of blockchain platforms that provide Dapp creation functionality have created their own token standards, however, for the sake of this article we are only looking at Ethereum.
The most popular token standards on Ethereum are the ERC-20, ERC-721, ERC-777, and ERC-1155 tokens. Each holds its own functionality and would be utilized depending on what the Dapp intends to use it for, i.e. will it be a transferable asset or be used to hold ownership rights.
What is an ERC-20 token?
By far the most popular token standard utilized on the Ethereum network, the ERC-20 token is a fungible token that can be bought, sold and traded in the blockchain ecosystem. To date over 350,000 ERC-20 tokens have been created.
Similar to the functioning of other cryptocurrencies like Bitcoin and Litecoin, ERC-20 tokens also hold value and are able to be bought and sold, however, they operate solely on the Ethereum blockchain. This means that all ERC-20 transactions conducted are executed on the Ethereum blockchain network.
The rules associated with this particular token ensure that it can function optimally on the Ethereum blockchain, and must be submitted to the community leadership for approval prior to its launch. While some rules are mandatory and others optional, the required ERC-20 rules are as follows:
- total supply: defines the total supply of the token
- balance of: indicates how many tokens are in a wallet address
- transfer To, Transfer From: must be able to be transferred from one user to another
- allowance: ensures that wallets have a sufficient amount before making a transaction
- approve: checks total supply against transactions
The optional elements are centred around the token's name, its ticker symbol and how many decimal places it would have %u200BFor instance, Ethereum's token name is Ether, its ticker symbol is ETH and it is divisible by up to 18 decimal places.
Examples of ERC-20 tokens are Augur (REP), Basic Attention Token (BAT), Maker (MKR), USD Coin (USDC) and OmiseGO (OMG).
Can you mine ERC-20 tokens?
ERC-20 tokens, unlike Ethereum and its native coins (ether), cannot be mined. That is, new tokens are 'minted' when a planned initial token offering (ICO) or security token offering (STO) event takes place. Usually, these events involve users sending ether to a smart contract address and in return receiving the newly minted ERC-20 token.
An ERC-20 token is technically a smart contract so it's possible for the developer team behind an ERC-20 token to issue new tokens at will. However, this isn't recommended because users would be less likely to trust these tokens if they could be minted at will. There must be a measure of scarcity in order for tokens to be valuable.
The pros & cons of ERC-20 tokens:
Some of the main benefits of ERC-20 tokens include:
Fungible
Fungible ERC20 tokens are interchangeable, just like cash. Although the coins are technically distinct, they function in exactly the same way. You can trade one for another and they will be functionally equivalent, just like cash or gold.
Fungible tokens are fantastic, and there's a lot of value in the technical aspect. On a technical level, it's worth noting that fungible tokens don't add extra value to goods. They're typically beneficial in a variety of commercial scenarios.
Broad adoption
The popularity of ERC-20 tokens is quite apparent in the cryptocurrency industry. The number of exchanges, wallets, and smart contracts that already support newly-launched tokens has made it easy for new projects to integrate with them. There is plenty of developer support and documentation to go around.
Flexibility
The first thing to note about ERC-20 tokens is that they are highly flexible and may be used in a variety of circumstances and applications. This is due to the fact that these tokens are very customizable. They can be used in a lot of different scenarios such as Loyalty points programs, in-game currencies, or digital collectibles such as NFT's.
Some of the main cons of ERC-20 tokens include:
Mainstream
The popularity of ERC-20 tokens is also their greatest weakness. There are so many projects using the same standard that it's difficult to stand out from the crowd without differentiating your token in some way. Moreover, since they're essentially all the same on a technical level.
Fraud and Scams
It takes minimal effort to create a simple ERC-20 token, meaning that anyone could do it for good or bad purposes. As such you want to be careful with what you're investing in when considering blockchains projects because there are some Pyramid schemes masquerading as legitimate projects out there and trying to get unsuspecting investors involved in their scams. As a result, when looking at blockchain projects, you need to be cautious with what you invest in.
Other ERC Token Standards
While there is a large range of ERC tokens available, below we've outlined the most popular ones (excluding the ERC-20 one as it is listed above).
ERC-721
This token standard is for a non-fungible token (NFT) which gained huge popularity in the last year across the gaming and digital art worlds. These tokens represent ownership of something, and cannot be used interchangeably.
ERC-777
An evolution of the ERC-20 token, the ERC-777 provides more usability, particularly pertaining to its ability to mint or burn tokens. It also holds improved transaction privacy and an emergency recovery function.
ERC-1155
This token standard allows for the creation of both utility tokens and non-fungible tokens. Making trading more efficient, the token standard allows for bundling of transactions which in turn saves costs.
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