ERC-20 Token Standard: The Foundation of Ethereum's Token Ecosystem

The ERC-20 token standard is a technical protocol governing the creation and operation of fungible tokens on the Ethereum blockchain. Proposed in 2015 by developer Fabian Vogelsteller, ERC-20 has become the cornerstone of Ethereum's token economy, powering everything from utility tokens to DeFi platforms.

What Is ERC-20?

ERC-20 defines a common set of rules for tokens on Ethereum, ensuring interoperability across wallets, exchanges, and dApps. Key characteristics include:

Fungibility: Each token is identical and interchangeable (e.g., 1 ETH = 1 ETH).
Mandatory Functions: Token contracts must implement six core methods (e.g., transfer, balanceOf).
Optional Metadata: Developers can add details like token name ("Chainlink"), symbol (LINK), and decimal precision (18).

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How ERC-20 Tokens Work

ERC-20 smart contracts automate token management via:

Balance Tracking: The balanceOf function checks a wallet’s holdings.
Transfers: transfer moves tokens between addresses.
Approvals: approve authorizes third parties (e.g., dApps) to spend tokens.

// Simplified ERC-20 Interface  
contract ERC20 {  
    function totalSupply() public view returns (uint);  
    function balanceOf(address account) public view returns (uint);  
    function transfer(address recipient, uint amount) public returns (bool);  
    // ...  
}

Use Cases

ERC-20 tokens enable diverse applications:

| Sector | Examples |
|-----------------|-----------------------------------|
| DeFi | Stablecoins (DAI), liquidity tokens (UNI) |
| Gaming | In-game currencies (MANA) |
| ICOs | Fundraising (2017–2018 boom) |

Limitations and Alternatives

While ERC-20 dominates, it lacks support for:

Non-Fungible Tokens (NFTs): Addressed by ERC-721.
Batch Transfers: Solved via ERC-1155.

FAQs

1. Why is ERC-20 so popular?

Its simplicity and compatibility make it ideal for creating standardized tokens without reinventing the wheel.

2. Can ERC-20 tokens be mined?

No—they’re minted via smart contracts upon deployment.

3. What’s the difference between ERC-20 and Bitcoin?

Bitcoin is a native cryptocurrency, while ERC-20 tokens are assets built atop Ethereum.

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Conclusion

ERC-20’s flexibility has fueled Ethereum’s growth, from ICOs to DeFi. As blockchain evolves, newer standards like ERC-721 and ERC-1155 complement—rather than replace—this foundational protocol.