An ERC-20 token is a type of fungible digital asset built on the Ethereum blockchain. Standing for "Ethereum Request for Comments 20," it defines a standardized framework that governs how tokens operate—enabling seamless interaction across wallets, decentralized applications (dApps), and exchanges. This technical standard ensures consistency in token behavior, including transfer mechanisms, supply management, and transaction approvals.
Introduced by developer Fabian Vogelsteller and formally adopted through Ethereum Improvement Proposal 20 (EIP-20) in 2017, ERC-20 has become the backbone of Ethereum’s expansive token ecosystem. Today, thousands of tokens adhere to this standard, leveraging Ethereum’s robust security and widespread infrastructure.
ERC-20 tokens function on both Ethereum’s mainnet and layer-2 scaling solutions such as Arbitrum and Optimism. While mainnet transactions inherit Ethereum’s security, they can face high fees and congestion during peak usage. Layer-2 networks address these issues using rollup technology, enabling faster and more cost-effective transfers. Through crypto bridges, users can move their ERC-20 tokens between networks to optimize speed and cost.
👉 Discover how blockchain interoperability enhances token utility and access across networks.
Key Features of ERC-20 Tokens
The success of ERC-20 lies in its universal compatibility and developer-friendly design. Below are the core advantages driving its adoption:
- Interoperability: All ERC-20 tokens follow the same functional blueprint, ensuring smooth integration with wallets, exchanges, and dApps.
- Simplified Development: Developers can launch new tokens without building a custom blockchain—just deploy a smart contract based on the ERC-20 standard.
- Broad Support: From hardware wallets like Ledger to mobile apps like Trust Wallet, most platforms natively support ERC-20 tokens.
- Flexibility: These tokens can serve diverse roles—utility tokens, governance tokens, stablecoins, or reward systems.
This standardization laid the groundwork for subsequent innovations such as ERC-721 (NFTs) and ERC-1155 (multi-token standard), reinforcing Ethereum's role as a hub for digital asset innovation.
Technical Specifications Behind ERC-20
At its core, an ERC-20 token is powered by a smart contract written in Solidity, Ethereum’s primary programming language. The standard mandates six essential functions and two optional ones to ensure predictable behavior:
totalSupply: Returns the total number of tokens in circulation.balanceOf(address): Queries the token balance of a specific wallet address.transfer(address, uint256): Allows direct transfer of tokens from the sender’s account.approve(address, uint256): Grants permission for another address to spend a specified amount.transferFrom(address, address, uint256): Enables a third party to transfer tokens on behalf of the owner (after approval).allowance(owner, spender): Checks how many tokens a spender is allowed to transfer from the owner’s balance.
Additionally, two events—Transfer and Approval—are triggered during transactions to log activity on the blockchain.
These specifications guarantee that every ERC-20 token behaves consistently across applications, enhancing trust and usability within the ecosystem.
How to Identify an ERC-20 Token
You can verify whether a token follows the ERC-20 standard through several reliable methods:
- Check Coin Listings: Platforms like CoinMarketCap or CoinGecko display network information for each cryptocurrency. Look for “Ethereum” or “ERC-20” under the token’s network details.
- Inspect the Smart Contract: Every ERC-20 token has a unique contract address starting with
0x, followed by 40 alphanumeric characters. For example, Shiba Inu’s SHIB token uses the contract:0x95ad61b0a150d79219dcf64e1e6cc01f0b64c4ce - Use a Block Explorer: Visit Etherscan.io and paste the contract address. If it shows “Token Contract” with transfer functions and implements ERC-20 interfaces, it’s confirmed.
Transparent and open-source by design, these contracts allow anyone to audit supply metrics, holder distribution, transaction history, and code integrity.
👉 Learn how to securely interact with smart contracts and avoid common pitfalls.
Why Is ERC-20 So Important?
Before ERC-20, launching a new cryptocurrency required custom integrations with every wallet and exchange—a time-consuming and error-prone process. Each token had unique code, making cross-platform compatibility difficult.
ERC-20 solved this fragmentation by introducing a universal language for tokens. Now, any wallet or service supporting ERC-20 can automatically recognize and handle new tokens that follow the standard. This plug-and-play functionality dramatically accelerated innovation on Ethereum.
It also enabled the rise of Initial Coin Offerings (ICOs), where startups raised capital by issuing ERC-20 tokens to early investors. Projects could quickly distribute tokens while guaranteeing immediate usability across existing infrastructure.
Ultimately, ERC-20 democratized token creation and fueled the growth of decentralized finance (DeFi), NFTs, and Web3 ecosystems.
How Are ERC-20 Tokens Created?
Creating an ERC-20 token involves writing and deploying a smart contract on Ethereum using Solidity. Developers define key parameters such as:
- Token name (e.g., “MyToken”)
- Symbol/ticker (e.g., “MTK”)
- Total supply (maximum number of tokens)
- Decimal places (e.g., 18 decimals like ETH)
Once coded, the contract must be deployed to the Ethereum network—a process requiring gas fees paid in ETH. Deployment costs vary:
- Simple contracts: ~200,000–400,000 gas ($40–$100 depending on network load)
- Complex contracts (with staking or governance): Over 1 million gas (can exceed $200 during peaks)
After deployment, the token exists permanently on-chain and can be distributed, traded, or integrated into dApps.
Popular Examples of ERC-20 Tokens
Many major cryptocurrencies use the ERC-20 standard:
- Arbitrum (ARB): Governance token for Arbitrum, a layer-2 scaling solution using optimistic rollups.
- Optimism (OP): Native token of Optimism, another Ethereum layer-2 network focused on scalability.
- USD Coin (USDC): A fully backed stablecoin pegged 1:1 to the U.S. dollar, widely used in DeFi.
These tokens exemplify the versatility of ERC-20—from powering decentralized governance to enabling price-stable digital transactions.
Risks and Limitations
Despite its benefits, ERC-20 comes with challenges:
- Network Congestion: High demand for Ethereum block space can lead to slow confirmations and expensive gas fees.
- Smart Contract Vulnerabilities: Poorly written code can result in bugs or exploits. Scammers have used fake ERC-20 tokens in rug pulls and pump-and-dump schemes.
- Irreversible Mistakes: Sending tokens to incompatible contracts may result in permanent loss—a flaw partially addressed by newer standards like ERC-223.
Users should always verify contract addresses and use trusted platforms when interacting with new tokens.
Other Ethereum Token Standards
While ERC-20 dominates fungible tokens, other standards serve specialized purposes:
- ERC-721: The foundation for non-fungible tokens (NFTs), where each token is unique—ideal for digital art and collectibles.
- ERC-1155: Supports both fungible and non-fungible tokens in one contract; efficient for gaming and metaverse projects.
- ERC-621: Extends ERC-20 by allowing future adjustments to token supply via minting or burning.
- ERC-223: Prevents accidental token loss by checking recipient compatibility before transfers.
These standards build upon ERC-20’s foundation, expanding Ethereum’s capabilities across industries.
Frequently Asked Questions (FAQ)
Q: Can I store any ERC-20 token in MetaMask?
A: Yes—MetaMask supports all ERC-20 tokens. You can manually add them using their contract address.
Q: Are all tokens on Ethereum ERC-20?
A: No. While many are, some use other standards like ERC-721 (NFTs) or exist on layer-2 networks with slight variations.
Q: How do I buy ERC-20 tokens?
A: Use centralized exchanges like OKX or decentralized platforms such as Uniswap—just ensure you’re buying the correct network version.
Q: Can I create my own ERC-20 token?
A: Yes—any developer can write a smart contract in Solidity and deploy it on Ethereum with sufficient gas fees.
Q: What happens if I send an ERC-20 token to a non-compatible wallet?
A: If the wallet doesn’t support ERC-20 or lacks the contract data, funds may become inaccessible—always double-check before sending.
Q: Is USDC always an ERC-20 token?
A: Not always—USDC exists on multiple chains (e.g., Solana, Algorand), but its Ethereum version is ERC-20 compliant.
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