What Are ERC-20 Tokens? All About Ethereum's Premier Token Standard
ERC-20 is a standard for fungible tokens on Ethereum. Find out what cryptocurrencies are and how they can be minted.
- ERC-20 is a technical standard for creating fungible tokens on the Ethereum blockchain, providing a framework for how to create, issue and distribute them.
- The purpose of token standards is to facilitate interoperability between smart contracts, ensuring that newly minted tokens are compatible with third-party services such as exchanges and wallets.
- The introduction of ERC-20 allowed developers to build on Ethereum, creating a network effect and becoming the driving force behind the 2017 ICO boom that created hundreds of new tokens.
What does ERC-20 mean?
In the world of token standards, ERC-20 reigns supreme. Proposed in 2015 by Fabian Vogelsteller, one of the founders of Ethereum, it is a technical standard for creating fungible tokens on the Ethereum blockchain. ERC” stands for “Ethereum Request for Comments” and “20” is the number assigned to this particular proposal, which defines a set of rules for the creation, issuance and distribution of tokens.
Fungible tokens are indistinguishable from each other and can be exchanged at any time. Many tokens use the ERC-20 standard, which has become a driving force behind the entire Ethereum ecosystem, constituting hundreds of thousands of contracts on the network.
What are Token Standards?
Token standards are a category of smart contract parameters, which define application-level guidelines on how a smart contract works on the underlying blockchain. A token standard deals more specifically with parameters such as token provisioning, transaction approval, and token data accessibility.
The purpose of token standards is to facilitate interoperability, ensuring that newly minted tokens can be exchanged for others of the same standard and are compatible with third-party services such as exchanges and wallets. In other words, ERC-20 is what ensures that users can buy, trade and HODL the many cryptocurrencies built on this standard. Without this framework, developers would create tokens using unique codebases and toolkits that couldn't interact with each other or protocols in predictable ways.
Top 10 ERC-20 tokens you need to know
While there are hundreds of thousands of ERC-20 tokens, some stand out from the rest. Here are some of the most popular today:
How do ERC-20 tokens work?
For ERC-20 tokens, interoperability with each other and with third-party services, such as the Crypto.com App and MetaMask, is achieved through the implementation of an application programming interface (API). This allows developers to retrieve on-chain data about a token and use it to trigger specific functions within their smart contract.
The API outlines six main characteristics that an ERC-20 token must possess:
- Data on the total supply of tokens.
- Token balance data in an Ethereum wallet.
- Functionality that allows the user to transfer ownership of a token to another user.
- Functionality that allows smart contracts to transfer tokens on behalf of the owner.
- Functionality that sets a limit on the number of tokens a smart contract can withdraw.
- Feature that grants external addresses permission to spend the token from a given balance.
How ERC-20 has become the gold standard for crypto tokens
Before the introduction of the ERC-20 standard, there was no common language that developers could use for creating tokens on Ethereum. This meant they had to build projects from scratch, as well as custom blockchain bridges to trade any token – both of which required technical knowledge.
By lowering the barrier to entry for building on Ethereum, ERC-20 gave developers the ability to know that their project would be interoperable with thousands of tokens and services, creating a network effect.
Furthermore, the fungible basis of the ERC-20 token standard is well suited to cryptocurrencies, which were and remain a major use case for blockchain technology. ERC-20 tokens can also be customized to include utilities for the owners, such as voting rights and reward mechanisms.
The above factors drove ERC-20 tokens to a surge in popularity, paving the way for the initial coin offering (ICO) boom that began in 2017. With billions of dollars raised, a new generation of projects, many of which have become mainstays of the cryptocurrency space.
How to buy ERC-20 tokens on Crypto.com
In the Crypto.com app, users can conveniently purchase ERC-20 tokens and 250 other coins using a credit/debit card, Apple Pay, Google Pay, or 20 fiat currencies wired from their bank account. To do this, tap "Buy". from the main screen, then select the token to purchase and the payment method.
Final words – will ERC-20 maintain its gold standard?
Ethereum's original standard token, ERC-20, has played a pivotal role in the growth of blockchain projects, not just for the Ethereum network, but for the entire crypto ecosystem. Its widespread adoption has opened the door for developers to build decentralized finance (DeFi) products, games, exchanges, and more around its standards, expanding the possibilities of decentralized technology.
Since the introduction of the ERC-20, other token standards have been developed as alternatives or improvements. Among the most important we mention:
- ERC-777: Similar to ERC-20, this token standard defines the parameters for fungible tokens, with some differences. Notably, its “backward compatibility” allows these tokens to connect with older wallets and access a larger Ethereum ecosystem.
- ERC-721: Unlike ERC-20, ERC-721 is the standard for unique non-fungible tokens (NFTs) created on the Ethereum blockchain. Use cases include non-interchangeable assets such as digital artwork, physical assets, and access keys.
- ERC-1155: This multi-token standard combines the foundations of ERC-20 and ERC-721, meaning ERC-1155 tokens can be fungible, non-fungible, or both.
Due diligence and personal search
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