A Guide to Buying and Storing ERC20 Tokens

Written By CoinGawk

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Are you interested in putting some money into an exciting ICO? Then you’ll need to learn to handle ERC20 tokens properly. At least 95 out of 100 token crowd sales that get launched are brought into being using this protocol. If you’re new to cryptocurrency investing, then the whole thing can be daunting. How do you transfer or use these tokens? How do you store them? This guide will go over all of this and more.

What is an ERC20 token?

While Ethereum is pretty cool by itself, what makes it unique and what separates it from Bitcoin is the ability for other projects to piggyback off of its blockchain. Tokens launched on Ethereum’s main chain are called ERC20 tokens. While they follow the same basic rules for existence, these tokens are capable of doing tons of cool things. That includes working as part of a supply management system, as the backbone of banking and security protocols, as stable currency management systems and much, much more.

Almost every ICO, except for a few projects, has chosen to launch itself in this manner. That is because the ERC20 protocol creates a sort of standard or blueprint that other tokens can follow. It also makes it much easier to launch and crowdfund a project thanks to having these standards in place. If you’re looking to make your crypto fortune by investing in coin offerings, then you’ll need to familiarize yourself with ERC20 tokens. The most important lesson, of course, will be learning how to transact with them and store them.

How do ERC20 tokens work?

ERC20 tokens, while separate entities in their own right, are still part of Ethereum. That means you’ll be storing them in an Ethereum wallet. When you send or receive tokens, it will be using an Ethereum address. You’ll only be able to see them and manage them on wallets that support ERC20 tokens, but they will still be there, even when you access this wallet from another device. So don’t freak out if they aren’t showing up.

If you use a wallet like Coinomi, then you’ll have the ability to add tokens to your wallet, allowing you to manage these tokens individually. The great part about this is that if a wallet supports one ERC20, then typically, it supports them all. That is because you can still manually enter the smart contract address that manages the token, allowing you to track any tokens on the Ethereum blockchain using the wallet. Even those without “official” support. To get this information you can go to Etherscan and look up the token. Its page there will provide you with the contract address and decimal you need to enter for it to be shown in your wallet.

Who creates ERC20 tokens?

The answer to this may be surprising to people who are new to the crypto space, but anyone can create an ERC20 token. That is why it’s essential to research a project thoroughly before you invest in it. While the ability to create these tokens is a remarkable achievement, it’s also a prime target for thieves. For every good-intentioned community project with big dreams, there are probably three more scammers scheming to take your money. If you plan to invest in these tokens, then you should be on the lookout for red flags that signal a scam, such as a team with members who are either anonymous or have questionable or unverifiable credentials. Other common things to avoid are projects that are lacking in direction or funding to accomplish their goals.

Even tokens with good intentions can end up being bad investments though. You should remember that any investment has the potential not to work out quite how you planned, and then multiply that by about a hundred for cryptocurrency investments. This space is still new and risky, so don’t put your life savings into one feeble coin offering or you are going to have a bad day indeed.

Where do you store ERC20 tokens?

The good news for investors is that since ERC20 tokens are so popular, most major wallets support them. These include web-based wallets, mobile-ready wallets, and even some hardware wallets. Which one should you choose though? Your biggest concern here should be the security of your investment. There are a lot of ways that your cryptocurrencies can get stolen, and you don’t want to have that kind of regret. Once your tokens are gone they are gone for good, so be proactive about your security measures. There are many suitable and safe wallets out there that support these tokens, but the one place you should never keep them is an exchange.

Keeping assets on exchanges is the number-one way that investors lose their money because anything that uses an email-based login is easy to phish. So, do yourself a favor and get a real wallet. If you’d like a multi-asset wallet for convenience, then Coinomi has excellent and safe applications for both iPhone and Android devices where you can store all of your ERC20 tokens and even a wide variety of other coins as well.

Investors should also be aware that they need gas to send tokens to other wallets. Gas is a fee that the Ethereum network charges for transactions. If you don’t have at least some Ethereum in that wallet, you won’t be able to pay the gas and transfer your tokens.

How do you buy ERC20 tokens?

If the token you want to purchase is already released, then you’ll need to buy it on an exchange. The exchange you’ll need will vary depending on the specific asset, but in most cases, you can use Coinmarketcap to find an acceptable exchange. When in doubt, check the project’s website. It’s in the development team’s best interest to point investors in the right direction when it comes to buying their token. After you’ve completed your purchase, all you need to do is send those tokens from the exchange to your Ethereum wallet address.

There are plenty of places where you can pick up some ERC20 tokens. The more popular exchanges include Binance and Bittrex, although you will most likely need another cryptocurrency to do so. Many exchanges that trade ERC20 tokens do not accept fiat dollars, and you’ll need to own either Bitcoin or Ethereum already to make the swap.

For those who are looking to invest in ICOs, the process is somewhat different. In most cases this is a pre-sale, meaning that you won’t get your tokens immediately. You’ll have to register for the coin offering first, and then whenever the designated launch day is, that’s when you can claim your tokens. In most cases, you’ll be required to transfer Ethereum that you’ve already purchased to a specific contract address, which is pretty much the same as sending Ethereum to another wallet. Then the smart contract will automatically issue you tokens based on whatever rate the ICO organizers offered you for your Ethereum. The periods and exact details for these coin sales will vary, and you’ll need to check everything before you commit to investing.

Hopefully, this guide has cleared up some of your questions about using ERC20 tokens. Not only are they a cool asset, but they’re also are many great investment opportunities out there for them. While it can be slightly intimidating at first to use these new protocols, investors who are willing to take the time to learn have nothing to fear.

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