ERC-20 is the backbone of tokenization on the Ethereum blockchain, enabling seamless interoperability across decentralized applications (dApps) and exchanges. Unlike ERC-721 (NFTs), ERC-20 tokens are fungible—each unit is identical and interchangeable. This standard’s brilliance lies in its smart contract compatibility, making it the go-to framework for creating utility tokens, stablecoins, and governance assets.
Table of Contents
- What Is ERC-20?
- History of ERC-20
- ERC-20 Technical Structure
- Key Functions of ERC-20 Tokens
- ERC-20 vs. Other Token Standards
- Top ERC-20 Token Use Cases
- FAQs
What Is ERC-20?
ERC-20 (Ethereum Request for Comment 20) is a technical standard for creating tokens on Ethereum. It defines a set of rules—like a blueprint—ensuring tokens work uniformly across wallets, exchanges, and dApps.
Why It Matters:
- Smart Contract Integration: Enables automated transactions (e.g., lending, staking).
- Interoperability: Tokens like USDC, LINK, and UNI share the same base, simplifying integration.
- Fiat-like Utility: ERC-20 tokens can represent currencies, shares, or loyalty points.
👉 Discover how top DeFi projects leverage ERC-20 tokens
History of ERC-20
Proposed by Fabian Vogelsteller in 2015, ERC-20 solved a critical problem: the lack of token standardization. Before ERC-20, each Ethereum-based token had unique code, causing compatibility issues.
Key Milestones
- 2015: Draft submitted as the 20th comment on Ethereum’s GitHub (hence "ERC-20").
- 2017: Officially adopted as the Ethereum community standard.
- Today: Powers 90%+ of Ethereum tokens, including stablecoins (USDT) and DeFi tokens (AAVE).
ERC-20 Technical Structure
ERC-20 tokens must implement these core functions:
| Function | Purpose |
|---|---|
totalSupply() | Returns the total number of tokens in circulation. |
balanceOf() | Checks the token balance of a specific wallet address. |
transfer() | Moves tokens from the sender to another address. |
approve() | Allows a third party (e.g., an exchange) to spend tokens on your behalf. |
Optional Metadata: Token name (e.g., "Chainlink"), symbol (LINK), and decimals (18).
Key Functions of ERC-20 Tokens
1. Transfer Mechanism
- Tokens move via blockchain transactions, verified by miners.
- Example: Sending USDC to pay for a service.
2. Balance Tracking
- Wallets like MetaMask use
balanceOf()to display real-time holdings.
3. Automated Trading
- DeFi platforms use
approve()+transferFrom()for swaps (e.g., Uniswap).
ERC-20 vs. Other Token Standards
| Standard | Type | Use Case | Example |
|---|---|---|---|
| ERC-20 | Fungible | Payments, DeFi | USDC, LINK |
| ERC-721 | Non-Fungible | Unique assets (NFTs) | CryptoPunks |
| BRC-20 | Bitcoin-based | Experimental tokens on Bitcoin | ORDI |
Why ERC-20 Dominates:
- Deep integration with Ethereum’s ecosystem.
- Lower development complexity vs. BRC-20.
Top ERC-20 Token Use Cases
- Stablecoins: USDT, USDC (pegged to USD).
- DeFi Tokens: UNI (Uniswap), COMP (Compound).
- Governance: Voting rights in DAOs (e.g., MKR).
👉 Explore ERC-20 tokens on leading exchanges
FAQs
Q1: Are ERC-20 tokens safe?
Yes—if the smart contract is audited. However, scams exist (e.g., fake tokens). Always verify contract addresses.
Q2: Why do ERC-20 transactions need gas fees?
Gas (paid in ETH) compensates miners for processing transactions on Ethereum.
Q3: Can I store ERC-20 tokens in any wallet?
Only Ethereum-compatible wallets (e.g., MetaMask, Trust Wallet).
Q4: What’s the difference between ERC-20 and ETH?
ETH is Ethereum’s native currency; ERC-20 tokens are assets built on Ethereum.
Q5: How do I buy ERC-20 tokens?
- Centralized exchanges (Coinbase, Binance).
- Decentralized exchanges (Uniswap).
Q6: Are ERC-20 tokens scalable?
Limited by Ethereum’s network speed. Layer-2 solutions (Polygon) help reduce fees.
Final Thought: ERC-20’s flexibility and adoption make it the gold standard for blockchain tokenization—powering everything from global payments to decentralized governance.