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ERC-20

ERC-20 is the technical standard for fungible tokens on the Ethereum blockchain. It provides a set of common rules and functions that all tokens on the Ethereum network must follow to ensure compatibility across wallets, exchanges, and decentralized applications. By defining methods for token transfers, balance tracking, and approval processes, ERC-20 allows different projects to create their own digital assets while maintaining seamless integration with the existing ecosystem of tools and decentralized finance protocols.

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Definition

ERC-20 is the technical standard for fungible tokens on the Ethereum blockchain. It provides a set of common rules and functions that all tokens on the Ethereum network must follow to ensure compatibility across wallets, exchanges, and decentralized applications. By defining methods for token transfers, balance tracking, and approval processes, ERC-20 allows different projects to create their own digital assets while maintaining seamless integration with the existing ecosystem of tools and decentralized finance protocols.

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Simple explanation

ERC-20 is like a universal format for digital stickers. Because every sticker follows the same shape and size rules, any sticker album can store them. This makes it easy for wallets to hold and trade many different types of tokens as if they were the same.

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Why it matters

It enabled the ICO boom and the foundation of DeFi. Without a common standard, every token would require custom software integration, making interoperability impossible.

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How it works

The standard defines a smart contract interface with specific functions like totalSupply, balanceOf, transfer, and approve. When a project launches a token, they deploy a contract that implements these functions. This allows any ERC-20 compatible wallet to recognize, store, and send the new asset without custom coding.

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Real-world example

Chainlink (LINK), Uniswap (UNI), and Tether (USDT) are prominent examples of ERC-20 tokens.

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Advantages

  • Wide compatibility
  • Ease of integration
  • Standardized exchange support

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Limitations

  • Not suitable for unique items
  • Gas costs per transfer

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Common misconceptions

  • Users often mistake ERC-20 as the only token standard on Ethereum.
  • People think ERC-20 tokens have no intrinsic value, ignoring the utility provided by their protocols.
Canonical knowledge ID: glossary:erc-20