ERC-20 – Definition & Detailed Explanation – Blockchain and Cryptocurrencies Glossary

What is ERC-20?

ERC-20 stands for Ethereum Request for Comments 20, which is a standard protocol for creating and issuing tokens on the Ethereum blockchain. It was proposed by Fabian Vogelsteller and Vitalik Buterin in November 2015. ERC-20 tokens are fungible tokens, meaning that each token is identical and can be exchanged on a one-to-one basis. These tokens have become the most widely used standard for creating and issuing tokens on the Ethereum blockchain.

How does ERC-20 work?

ERC-20 tokens are smart contracts that run on the Ethereum blockchain. These tokens follow a set of rules and standards that allow them to interact seamlessly with other tokens and decentralized applications (dApps) on the Ethereum network. The ERC-20 standard defines six mandatory functions and three optional functions that all ERC-20 tokens must implement. These functions include transferring tokens, approving spending limits, and checking token balances.

What are the benefits of using ERC-20 tokens?

There are several benefits to using ERC-20 tokens. One of the main advantages is that ERC-20 tokens are interoperable, meaning that they can be easily exchanged and used across different decentralized applications and exchanges. Additionally, ERC-20 tokens are highly customizable, allowing developers to create tokens with unique features and functionalities. ERC-20 tokens also benefit from the security and immutability of the Ethereum blockchain, making them a trusted and reliable form of digital currency.

What are the limitations of ERC-20 tokens?

While ERC-20 tokens offer many benefits, they also have some limitations. One of the main drawbacks is that ERC-20 tokens are not backward compatible, meaning that if a token is created using an older version of the ERC-20 standard, it may not be compatible with newer versions. Additionally, ERC-20 tokens can be vulnerable to security issues, such as smart contract bugs and vulnerabilities. It is essential for developers to thoroughly test and audit their smart contracts to ensure the security and integrity of their ERC-20 tokens.

How are ERC-20 tokens created?

ERC-20 tokens are created using smart contracts on the Ethereum blockchain. Developers can use programming languages such as Solidity to write the code for their ERC-20 tokens. The smart contract will include the necessary functions and parameters defined by the ERC-20 standard, such as the total supply of tokens, token name, symbol, and decimal places. Once the smart contract is deployed on the Ethereum blockchain, the ERC-20 tokens are minted and can be distributed to users through token sales or airdrops.

What are some examples of ERC-20 tokens?

There are thousands of ERC-20 tokens in existence, with new tokens being created regularly. Some popular examples of ERC-20 tokens include:

– Tether (USDT): A stablecoin pegged to the US dollar, used for trading and transferring value on the Ethereum blockchain.
– Chainlink (LINK): A decentralized oracle network that enables smart contracts to securely interact with external data sources.
– Uniswap (UNI): A decentralized exchange (DEX) that allows users to trade ERC-20 tokens directly from their Ethereum wallets.
– Wrapped Bitcoin (WBTC): A tokenized version of Bitcoin that can be used on the Ethereum blockchain for trading and lending purposes.

These are just a few examples of the diverse range of ERC-20 tokens that exist on the Ethereum blockchain, each serving different purposes and use cases within the decentralized ecosystem.