Since its launch in 2015, the Ethereum blockchain has revolutionized decentralized applications (dApps) and smart contracts. Central to this innovation is the ERC-20 token standard, which governs how fungible tokens operate on Ethereum, ensuring seamless interaction across wallets, exchanges, and dApps.
This standard has transformed token creation and management on Ethereum. But what exactly is ERC-20, and how does it function?
In this guide, we’ll explore:
- The definition and purpose of ERC-20
- How ERC-20 tokens work
- Their benefits and risks
- Examples of popular ERC-20 tokens
- How to create an ERC-20 token
What is ERC20?
ERC20 is a technical standard for fungible tokens on Ethereum. Short for Ethereum Request for Comments 20, it establishes rules for token contracts, ensuring compatibility with Ethereum’s ecosystem, including wallets, exchanges, and smart contracts.
Origins of ERC20
Proposed by developer Fabian Vogelsteller in 2015 and formalized as EIP-20 in 2017, ERC-20 solved early challenges in token standardization. Before ERC-20, each token had unique implementations, causing interoperability issues.
👉 Discover how ERC-20 tokens power DeFi
How Does ERC-20 Work?
ERC-20 defines six mandatory functions in smart contracts:
totalSupply: Returns the token’s max supply.balanceOf: Checks a wallet’s token balance.transfer: Moves tokens between addresses.approve: Allows a third party to spend tokens.transferFrom: Enables approved transfers.allowance: Tracks approved spending limits.
Optional features include:
name: Token name (e.g., "USD Coin").symbol: Ticker (e.g., USDC).decimals: Divisibility (e.g., 18 decimal places).
Benefits of ERC-20 Tokens
- Interoperability: Works across all Ethereum dApps.
- Liquidity: Widely traded on DEXs/CEXs.
- Security: Inherits Ethereum’s robust infrastructure.
- Scalability: Supports high transaction volumes.
Top ERC-20 Tokens
| Token | Use Case |
|-------------|-------------------|
| USDT | Stablecoin |
| USDC | Regulated stablecoin |
| LINK | Oracle services |
| UNI | DEX governance |
| SHIB | Meme token |
Risks and Challenges
- High Gas Fees: Ethereum congestion increases costs.
- Smart Contract Bugs: Vulnerabilities can lead to exploits.
- Regulatory Uncertainty: Evolving compliance landscape.
Other Ethereum Token Standards
- ERC-721: Non-fungible tokens (NFTs).
- ERC-1155: Hybrid fungible/NFT tokens.
- ERC-404: Fractionalized ownership.
FAQ
1. Is ERC-20 the same as ETH?
No. ETH is Ethereum’s native currency; ERC-20 tokens are built atop it.
2. How do I store ERC-20 tokens?
Use Ethereum-compatible wallets like MetaMask or Ledger.
3. Are ERC-20 tokens safe?
Generally yes, but audit smart contracts for vulnerabilities.
4. How are ERC-20 tokens created?
Via Solidity smart contracts deployed on Ethereum.
5. Where can I buy ERC-20 tokens?
On exchanges supporting Ethereum tokens.
Conclusion
ERC-20 is the backbone of Ethereum’s token economy, enabling DeFi, gaming, and more. While challenges like scalability persist, its standardization drives blockchain innovation.
Ready to create your own ERC-20 token? Leverage tools like Solidity and Web3 platforms to get started!