With NFTs and airdrops becoming more and more popular, here's a beginner's guide to how these tokens work and where you store them.
In this guide, we will be focusing on ERC-20 tokens, the modalities involved in creating compatible wallet addresses and how to receive tokens on your ERC-20 wallet.
It is understandable if cryptocurrency and its associated concepts come off as gibberish in your first attempt at trying out crypto services and products. Like every other new technology, it might take a while to fully come to terms with the technicalities involved, especially if the processes almost always require a hands-on approach. This is why we have created guides detailing the core workings of crypto concepts.
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What Is a Token?
Ethereum functions as an ecosystem that houses several blockchain applications. Think of it as an operating system enabling a customizable environment for app developers. The only difference is that Ethereum uses blockchain technology and promotes a high level of autonomy, security and immutability. Blockchains apps use smart contracts to automate functionalities and provide autonomy.
That said, these apps often issue tokens designed to offer additional features or privileges to users. In some cases, these tokens allow users to claim a share of the app’s revenue. Some are used to facilitate trades on Ethereum-based marketplaces. Depending on the design decisions of the developer, tokens do offer multiple use cases.
Another thing you need to know about tokens is that they are not held by accounts. Tokens exist in contracts, which function like decentralized databases that map tokens to the appropriate Ethereum address. Also, it is the token contract that governs and specifies the rules that apply to a given token. With this, developers set the name, symbol, divisibility and other important token identifiers.
Hence, the transfer of ownership of tokens only occurs when the current owner sends a request to the contract directing it to allocate part of the balance to another Ethereum wallet address. To register this transfer on the blockchain, the owner must pay a gas fee in ETH.
Now that you understand what a token is, what then are ERC-20 tokens?
What Is an ERC-20 Token?
Ethereum core developers concluded that it was not viable to promote a Wild Wild West ecosystem where developers can create different variants of tokens. Instead, they introduced token standards that govern programming on Ethereum and deliver high compatibility.
Considered the most popular token specification on the Ethereum blockchain, ERC-20 or Ethereum Request for Comments-20 was launched in 2015 and has since enabled the standards for creating digital assets that can interact seamlessly. In turn, wallets and other ERC-20 compatible services use this standard to enable their infrastructure to receive, store, exchange and send ERC-20 tokens.
How to Send ERC-20 Tokens
The first thing you need to know is that all Ethereum wallet addresses are compatible with ERC-20 tokens. While this is a given, it is the prerogative of your wallet provider to provide you with permission to access your ERC-20 token balance. In other words, some wallet providers do support Ethereum addresses, but might restrict you from seeing ERC-20 tokens associated with the address.
Sending ERC-20 tokens is as simple as entering or pasting the recipient's Ethereum wallet address. There are mainly two places you can send your ERC-20 tokens from: a wallet from your centralized exchange (Binance, Coinbase, etc) and a software wallet, also called hot wallet (Metamask, Trust Wallet, etc). A major consideration to look out for when sending ERC-20 tokens are gas fees. These are transaction fees that users pay to miners to have their transactions included in the blockchain. Peak hours where many users are transacting on the Ethereum blockchain will cause gas fees to inflate. Users can check recommended gas prices on sites like Eth Gas Station.
How to Receive an ERC-20 Token
Chances are you have found an interesting Ethereum project and you are looking to receive its native ERC-20 token. If this describes your current predicament, then you are in the right place.
It is advisable to research the compatibility of wallets beforehand. Ensure that your wallet does not only support ERC-20 tokens, but also lists the specific token you intend to receive, especially if you plan on receiving airdrops. In most cases, airdropped tokens are obscure digital assets that are yet to list on exchanges. If this is the case, it is unlikely that exchange wallet addresses would support such tokens.
When it comes to ERC-20 tokens, the recommended wallets are MyEtherWallet (MEW) and MetaMask. Whatever the ERC-20 token may be, you can be sure that they are accessible via these two wallets.
Before opening an account on either of these two ETH wallets, it is important to note that they are self custody wallets. Hence, they will store your private keys on your devices and expect you to write down and store your seed phrase. A seed phrase is a list of 12 random words that you are required to enter whenever you lose access to your wallet or forget your password.
It is simple and straightforward to create an account on MetaMask and MEW. However, for this guide, we will limit ourselves to the MetaMask option.
How to Create an Ethereum Address on Metamask
- Visit https://metamask.io/ and locate the extension that is compatible with your browser.
- Click and install the appropriate extension.
- Once downloaded and installed, click on the extension icon and follow the prompts to create and confirm your password.
- Next, accept the term of use and give the extension the go-ahead to reveal your seed phrase. It is advisable to store multiple copies of these secret words in secure locations. Once you have backed up your seed phrase, the account registration process is complete.
- To view your ETH or ERC-20 address, navigate and select the Deposit Ether Directly tab. Then click on View Account to see and copy your address. You can now paste the Ethereum address on airdrop portals requesting an ERC-20 address to receive free tokens.
How to View ERC-20 Tokens on Metamask
So now that you have received airdropped ERC-20 tokens, how do you view them? This is quite straightforward as well, if you follow the following instructions.
- If you cannot find the token when you click the Assets tab, then you might need to add the token manually.
- Click the Add Token tab and select Custom Token to expand the search.
- You are required to enter the token address at the appropriate field. More often than not, the Token Symbol and the Decimal fields autofill. If not, then you might need to find the token project’s documentation to access the details. You can search for the token contract address on Ethereum blockchain explorers like Etherscan or Ethplorer. Better still, you may request the token address directly from the sender. Be wary of airdrops that do not reveal token contract addresses.
- Once you have filled all the fields, click Next and select Add Token to confirm.
How to Receive and View NFT Tokens on Metamask
Due to the explosion of airdrops for ERC-721 standard tokens or what is commonly called non-fungible tokens (NFTs), we have decided to detail some of the processes involved in receiving and seeing them in your wallet.
First, you need to access your Ethereum wallet address as shown above. Once the transaction is confirmed, it is recommended to view the NFT on the mobile app version of MetaMask since collectibles are not visible on the web version for now.
If the NFT is not visible in the collectible section, then click Add Collectibles and enter the collectible ID and Ethereum address in the appropriate field. Once this is done, the NFT should appear under the Collectible tab.
My Ether Wallet (MEW)
MEW is branded as Ethereum's original wallet – a free, easy-to-use, open-source platform that helps users interact with the Ethereum blockchain. On the platform, users can send and receive funds on the Ethereum blockchain, manage non-fungible tokens (NFTs), manage assets on other Ethereum compatible chains (Binance Smart Chain, Ethereum Classic, Polygon, etc) and interact with smart contracts. Users can also explore decentralized applications (DApps) or register a domain name for their Ethereum wallet.
Ethereum Transaction ID
Every transaction, or token transfer, on the Ethereum blockchain will have an associated transaction ID, also known as transaction hash or txhash. This acts as a reference number for both parties in the transaction. Users can look up the transaction using the ID on a block explorer – such as this from CoinMarketCap, or Etherscan. Two main factors will determine how long it takes for the transaction to go through – the network traffic and gas fee paid. You can check if your transaction successfully went through on the blockchain explorer. Learn more about how to use Etherscan here.
Conclusion
As you must have noticed, it is quite easy to set up an ERC-20 address and receive tokens. One thing you must however keep in mind is that transactions involving all ERC tokens require gas fees in ETH. Therefore, ensure that you have enough ETH to pay the fee before executing transactions.
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