ERC-20
The ERC-20 token standard is one of the foundational technologies for the Ethereum blockchain, allowing developers to create digital tokens with standardized functionality. ERC-20 tokens are used across the blockchain ecosystem and form the basis for many popular cryptocurrencies and decentralized applications (DApps).
What is ERC-20?
ERC-20 stands for “Ethereum Request for Comment 20,” a proposal created by Ethereum developers to establish a standardized format for digital tokens. It defines a set of rules and functions that all Ethereum tokens must follow, making ERC-20 tokens interoperable across wallets, exchanges, and decentralized applications.
ERC-20 tokens are used widely across the Ethereum blockchain and beyond, enabling seamless trading, storage, and integration across various DeFi (Decentralized Finance) platforms.
How ERC-20 Works
An ERC-20 token is essentially a smart contract that follows specific guidelines to ensure it interacts smoothly with other contracts, wallets, and platforms on Ethereum. These tokens represent a wide variety of assets, such as stablecoins, utility tokens, and more. Here’s how the ERC-20 token standard functions:
- Common Interface: By following the ERC-20 standard, tokens have a universal format and set of functions that allow them to interact seamlessly with Ethereum-based platforms.
- Core Functions: ERC-20 specifies several core functions that every token must include, such as balance inquiries, transfers, and approvals for third-party transactions.
- Integration Across Platforms: Since ERC-20 tokens follow a shared standard, they can be traded and managed across most wallets and exchanges that support Ethereum.
Stablecoins like USDC and Tether (USDT) are ERC-20 tokens, making them interoperable with any Ethereum wallet or exchange that supports ERC-20. This universal compatibility makes them popular for a wide range of applications, from trading to DeFi protocols.
Key Components of the ERC-20 Standard
The ERC-20 token standard includes essential functions that enable easy integration and seamless interaction across the Ethereum network:
| Function | Description |
|---|---|
| totalSupply | Returns the total number of tokens created and available on the blockchain. |
| balanceOf | Returns the balance of tokens held by a specific address. |
| transfer | Moves tokens from the sender’s account to another address. |
| approve | Authorizes a third party to spend tokens on behalf of the token owner. |
| transferFrom | Allows a third party to transfer tokens from one account to another, using prior approval. |
| allowance | Returns the remaining amount of tokens that a third party is allowed to spend on behalf of the token owner. |
Core Characteristics of ERC-20 Tokens
ERC-20 tokens are widely used because of their simplicity, flexibility, and compatibility with the Ethereum ecosystem. Here are some of the key characteristics that make ERC-20 tokens popular:
- Interoperability: ERC-20 tokens can be traded, stored, and managed on any Ethereum-compatible wallet or platform, ensuring easy integration across the Ethereum ecosystem.
- Programmability: Developers can program additional features onto ERC-20 tokens, allowing them to function in various applications such as rewards, governance, and more.
- Reliability: ERC-20 is a tested and stable standard, making it a reliable choice for developers creating new tokens.
The ERC-20 standard provides a universal structure for tokens on Ethereum, allowing them to interact seamlessly across a wide range of wallets, exchanges, and DApps. This universal compatibility has driven the widespread adoption of ERC-20 tokens across the blockchain ecosystem.
Popularity and Use Cases of ERC-20 Tokens
ERC-20 has become the most widely used token standard on Ethereum, with thousands of tokens following this protocol. Here are some common applications:
- Stablecoins: Many popular stablecoins, including USDC and DAI, are ERC-20 tokens, making them interoperable with DeFi platforms, wallets, and exchanges.
- DeFi Applications: ERC-20 tokens are the backbone of decentralized finance (DeFi), enabling lending, borrowing, and yield farming on platforms like Uniswap, Aave, and Compound.
- Governance Tokens: Many projects issue governance tokens that allow holders to vote on platform changes. Examples include COMP for Compound and UNI for Uniswap.
- Initial Coin Offerings (ICOs): ERC-20 tokens became the standard for ICOs, allowing startups to raise funds by issuing tokens directly to investors.
ERC-20 tokens also support “wrapped” assets, such as Wrapped Bitcoin (WBTC), which enables assets from other blockchains to be traded on Ethereum, expanding the ecosystem’s versatility.
How ERC-20 Differs from Other Token Standards
The ERC-20 standard is specifically designed for fungible tokens, meaning all tokens of the same type are identical in value and function. Here’s a comparison with other popular standards:
| Standard | Type of Token | Description |
|---|---|---|
| ERC-20 | Fungible | Tokens are identical, commonly used for currencies, stablecoins, and DeFi applications. |
| ERC-721 | Non-Fungible (NFT) | Each token is unique and irreplaceable, used for collectibles, art, and real estate. |
| ERC-3643 | Security Token | Designed for security tokens with compliance features, ideal for regulated financial assets. |
ERC-20 remains the go-to standard for developers building digital assets that require fungibility and ease of integration with Ethereum’s robust ecosystem of wallets, exchanges, and DeFi platforms.
Summary
ERC-20 tokens have become essential to the Ethereum ecosystem, supporting a wide range of digital assets from cryptocurrencies to stablecoins and governance tokens. The simplicity, compatibility, and reliability of ERC-20 have driven its adoption across the blockchain space, making it the most widely used standard for digital tokens.
By following the ERC-20 standard, developers can create tokens that are easily compatible with Ethereum wallets, exchanges, and applications, bringing digital assets to millions of users worldwide. As the foundation of DeFi, stablecoins, and governance models, ERC-20 tokens continue to drive innovation and accessibility in the blockchain ecosystem.