ERC-20 refers to a technical standard used for creating and implementing tokens on the Ethereum blockchain. It’s like a set of rules or guidelines that ensure all tokens on Ethereum follow a specific structure, making it easier for developers to create tokens that are compatible with each other and with existing platforms, wallets, and exchanges.
Here’s a detailed breakdown:
What Does ERC-20 Mean?
- ERC: Stands for Ethereum Request for Comment. This is a proposal submitted to the Ethereum community for discussion.
- 20: This is the unique proposal number that was assigned to this particular token standard when it was introduced.
Why Is ERC-20 Important?
ERC-20 standardizes how fungible tokens (tokens that are interchangeable, like currency) operate on the Ethereum network. Before ERC-20, different tokens often had their own unique rules, making it difficult to integrate them into wallets, exchanges, or decentralized applications (dApps). The ERC-20 standard solved this problem by ensuring all tokens follow a specific set of rules, making them easier to use, transfer, and interact with across the entire Ethereum ecosystem.
Key Features of ERC-20 Tokens
Every ERC-20 token must adhere to these six functions:
- Total Supply: Specifies the total number of tokens in circulation.
- Balance Of: Returns the balance of tokens for a specific address.
- Transfer: Transfers tokens from one address to another.
- Transfer From: Facilitates transferring tokens from an address not owned by the sender (used in allowance-based transfers).
- Approve: Approves a specified number of tokens to be withdrawn by another address.
- Allowance: Checks how many tokens an address is allowed to spend from another’s balance.
Use Cases of ERC-20 Tokens
ERC-20 tokens are widely used in a variety of applications, including:
- Initial Coin Offerings (ICOs): Many blockchain startups raise funds by issuing ERC-20 tokens.
- Decentralized Finance (DeFi): Tokens used in DeFi applications, such as lending or staking protocols, often follow the ERC-20 standard.
- Utility Tokens: Some tokens serve specific purposes within dApps, allowing users to access certain services or features.
Popular ERC-20 Tokens
Some well-known cryptocurrencies built on the ERC-20 standard include:
- Chainlink (LINK)
- USD Coin (USDC)
- Uniswap (UNI)
- Tether (USDT)
Advantages of ERC-20 Tokens
- Interoperability: Tokens follow the same standards, ensuring they can be used with various dApps, wallets, and exchanges.
- Simplicity: Makes it easier for developers to create and deploy tokens on the Ethereum blockchain.
- Liquidity: ERC-20 tokens can easily be traded or exchanged across multiple platforms.
Conclusion
ERC-20 revolutionized the way tokens are created on the Ethereum blockchain, bringing standardization and compatibility across the network. Whether it’s for ICOs, DeFi, or utility purposes, ERC-20 tokens have become a fundamental part of the Ethereum ecosystem.