This approval is a crucial security feature for several reasons:
1. Permission to Spend Tokens
When you approve funds, you are actually giving permission to a smart contract to withdraw a specific amount of a certain token from your wallet up to the approved amount. This is necessary for ERC-20 tokens (or similar token standards on other blockchains) because smart contracts cannot directly access tokens in your wallet without permission. This mechanism prevents a contract from moving any of your tokens without explicit consent, thereby protecting your assets.
2. Security Measure
The approval step acts as a crucial security measure. By requiring users to manually approve transactions, wallets like MetaMask ensure that users are aware of what actions are being taken with their funds. This step helps prevent unauthorized transactions and ensures that users have control over which dApps have access to their funds. Be aware that approving funds to a third party comes with some risks, check this article about the risks and benefits of erc20 approvals.
3. Compliance with ERC-20 Standard
The ERC-20 token standard, which is the basis for most tokens on the Ethereum network, includes an approve() function. This function allows token holders to approve other addresses (usually smart contracts) to spend a specified amount of tokens on their behalf. This is essential for enabling decentralized exchanges, lending platforms, and other smart contract-based applications to function.
4. Single Approval for Multiple Transactions
In many cases, approving funds can be more convenient for users who plan to interact with a dApp multiple times. Instead of approving every single transaction, which would require paying gas fees each time, users can approve a larger amount once. This way, subsequent transactions can proceed without needing individual approvals, saving time and gas fees. However, users should be cautious and only approve amounts they are comfortable with, as this gives the dApp access to more of their funds.
5. Gas Fees and Network Congestion
Approving funds involves a transaction on the blockchain, which requires paying gas fees. These fees go to miners or validators who process transactions and secure the network. The need for an approval transaction before the actual transfer or interaction can also help mitigate unnecessary transactions during times of high network congestion, as users might reconsider executing transactions that require high gas fees.
Conclusion
The approval process is a fundamental aspect of interacting with smart contracts and dApps in a secure and controlled manner. While it might seem like an extra step, it’s a critical part of ensuring that users maintain control over their digital assets and understand the permissions they are granting to third-party contracts. Always be cautious about which contracts you approve and how much you allow them to spend.
