What Is The ERC-20 Token Standard?
Why Trust Cryptonews
Ad Disclosure
We believe in full transparency with our readers. Some of our content includes affiliate links, and we may earn a commission through these partnerships.Some of the biggest cryptocurrencies in the market like DAI and Render have been built on the ERC-20 token standard, but what is ERC-20? This is a set of rules and guidelines for creating tokens on the Ethereum blockchain. It stands for “Ethereum Request for Comment 20” and was proposed by Fabian Vogelsteller and Vitalik Buterin in November 2015.
This article will explore the history of the ERC-20 token standard, explain how it works within the Ethereum network, highlight some popular ERC-20 tokens, and discuss the benefits and drawbacks of using ERC-20 tokens. Additionally, we will compare ERC-20 with other Ethereum token standards and provide a guide on how to create your own ERC-20 token.
The History of ERC-20
So, what is the ERC-20 network? Fabian Vogelsteller and Vitalik Buterin proposed the ERC-20 token standard in November 2015 to standardize token creation on the Ethereum blockchain. Before ERC-20, each new token created on Ethereum had to implement its own unique code, making interoperability between tokens and decentralized applications (dApps) challenging.
The introduction of ERC-20 provided a standardized set of functions that all tokens must implement, such as transferring tokens, checking balances, and approving transactions.
This standardization has made it easier for developers to create new tokens and for users to interact with them. The adoption of ERC-20 was rapid, and it quickly became the most popular token standard on Ethereum. Its success has been instrumental in the rise of ICOs, which use ERC-20 tokens to raise funds for new projects.
The ease of creating and managing ERC-20 tokens has also fueled the growth of the DeFi ecosystem, where tokens are used for lending, borrowing, trading, and other financial services.
Did you know: Shiba Inu (SHIB) is one of the most well-known ERC-20 tokens, with the meme coin holding a current market of $9.5 billion. SHIB’s value has seen it rank amongst the top 10 largest cryptos in the world.
How Does ERC-20 Work on Ethereum?
In a nutshell, ERC-20 tokens work by implementing a set of functions that allow them to interact with the Ethereum blockchain and other smart contracts. These functions include transferring tokens between addresses, checking the balance of an address, and approving transactions. The standard also defines events that smart contracts can emit, such as when tokens are transferred or when an allowance is set.
When a developer creates an ERC-20 token, they must implement these functions and events in their smart contract. This ensures that the token can interact with other decentralized applications (dApps) and smart contracts on the Ethereum network. For example, a dApp that accepts ERC-20 tokens for payment can use the same functions to check balances and transfer tokens, regardless of which ERC-20 token is being used.
ERC-20 tokens are stored in Ethereum wallets and can be transferred between addresses just like Ether (ETH), the native cryptocurrency of the Ethereum network. The Ethereum network processes transactions involving ERC-20 tokens, and users must pay gas fees in ETH to execute these transactions. This integration with the Ethereum network makes ERC-20 tokens highly versatile and widely accepted.
Examples of ERC-20 Tokens
Aside from Shiba Inu already mentioned above, there are numerous Ethereum-based ERC-20 tokens that have entered the crypto limelight, some of them being:
- Tether (USDT): A stablecoin pegged to the US dollar, widely used for trading and as a store of value.
- Chainlink (LINK): A decentralized oracle network that provides real-world data to smart contracts on the blockchain.
- Uniswap (UNI): The governance token for the Uniswap decentralized exchange, which allows users to trade Ethereum-based tokens directly from their wallets.
- USD Coin (USDC): Another stablecoin pegged to the US dollar, used for trading, lending, and other financial services within the DeFi ecosystem.
For more examples of popular ERC-20 tokens, we’ve made a list of the best Ethereum ERC20 tokens in 2024.
The Benefits of ERC-20 Tokens
As a popular ERC token standard, there are a wide variety of benefits of ERC-20 tokens, let’s take a look at some of these.
Interoperability Across dApps
First, one of the main benefits of ERC-20 tokens is their interoperability across different dApps on the Ethereum network. Since they follow a standardized set of functions, ERC-20 tokens easily interact with any smart contracts that support the standard. This makes it easier for developers to build dApps that can accept multiple types of tokens and for users to manage their assets across not only an ERC-20 wallet but different platforms.
Standardization of Ethereum-Tokens
The standardization provided by ERC-20 simplifies the process of creating and managing tokens on the Ethereum blockchain. Developers do not need to write custom code for basic token functions, reducing the risk of errors and vulnerabilities. This standardization also makes it easier for users to understand and interact with different tokens, as they all follow the same basic rules.
The Drawbacks of ERC-20 Tokens
In addition to the benefits, there are also some drawbacks associated with ERC-20 standard tokens
Scalability Issues
ERC-20 tokens have faced scalability issues with their growing popularity, as their transaction throughput is bound to Ethereum. High transaction volumes can lead to network congestion and increased gas fees, making it more expensive and slower to transfer ERC-20 tokens. Ethereum has worked on solutions to improve scalability, such as the transition to Ethereum 2.0 and layer 2 scaling solutions, which pose a challenge for ERC-20 token users. The Dencun upgrade was also completed earlier this year, looking to lower the high gas fees, which was one of the biggest barriers to users.
Smart Contract Vulnerabilities
Another drawback of ERC-20 tokens is the potential for vulnerabilities in their smart contract code. While the standardization provided by ERC-20 reduces the risk of errors, developers still need to ensure that their specific implementation is secure. Bugs and vulnerabilities in smart contracts can lead to loss of funds or other issues, as seen in several high-profile hacks. Ethereum has a history of hacks and is the most targeted token standard in the DeFi space.
ERC-20 vs. Other Ethereum Token Standards
While ERC-20 is the most widely used token standard on Ethereum, other standards have been developed to address its limitations and provide additional functionality. For example, the ERC-721 standard is used for non-fungible tokens (NFTs), which represent unique digital assets such as art, collectibles, and in-game items. Their value rose to around $17 billion during the boom cycle of 2021.
Additionally, ERC-1155 is another standard that allows for the creation of both fungible and non-fungible tokens within a single smart contract, providing greater flexibility for developers.
How to Create an ERC-20 Token
Creating an ERC-20 token involves writing a smart contract that implements the standard functions and events. Developers need to define the total supply of tokens, the token’s name, symbol, and other properties. Once the smart contract is written and deployed to the Ethereum network, the tokens can be distributed to users and traded on various platforms. Here is a quick breakdown of the steps.
- Step 1: Define Your Token’s Specifications
- Step 2: Set Up Your Development Environment
- Step 3: Write the Smart Contract
- Step 4: Compile the Smart Contract
- Step 5: Deploy the Smart Contract
For those who are not familiar with coding, there are also tools and platforms available that simplify the process of creating ERC-20 tokens. These services provide user-friendly interfaces that allow users to create and deploy tokens without needing to write any code.
Conclusion
The ERC-20 token standard has played a crucial role in the growth and development of the Ethereum ecosystem. By providing a standardized set of functions for token creation, ERC-20 has made it easier for developers to build and deploy new tokens, with several top 10 cryptos including USDT and SHIB using this standard.
Despite its scalability issues and potential smart contract vulnerabilities, ERC-20 remains the most popular and widely used token standard on Ethereum. As the Ethereum network continues to evolve and improve, the use and adoption of ERC-20 tokens are likely to grow, further cementing their importance in the blockchain space.
FAQs
Is ERC-20 the same as ETH?
No, ERC-20 is a token standard on the Ethereum blockchain, while ETH (Ether) is the native cryptocurrency of the Ethereum network.
How do I know if my token is ERC-20?
To determine if your token is ERC-20, you can check its contract address on a blockchain explorer like Etherscan. The token’s contract should implement the standard ERC-20 functions.
How much does it cost to launch an ERC-20 token?
The cost of launching an ERC-20 token can vary depending on the complexity of the token’s smart contract, the gas fees on the Ethereum network, and any additional services or tools used to create and deploy the token. This could range from $500 – $2,000.
Which wallets support ERC-20 tokens?
Metamask comes as the most popular ERC-20 token wallet. However, platforms usually support numerous ERC-20 wallets, including Trust Wallet or Coinbase Wallet. Last but not least, wallets like Ledger or Trezor are great hardware wallet options.
What is the difference between ERC-20 and TRC-20?
ERC-20 and TRC-20 are token standards for creating tokens on Ethereum and TRON blockchains, respectively, with ERC-20 widely used in Ethereum-based projects and TRC-20 favored for its faster transactions and lower fees on the TRON network.
References
- What makes Shiba Inu valuable? (Bloomberg)
- History of Ethereum hacks (Bankless)
- NFT trading value surges 21000% (CNBC)
- What is the Dencun upgrade on Ethereum? (Forbes)
Best Bitcoin & Crypto Wallet
in numbers
About Cryptonews
Our goal is to offer a comprehensive and objective perspective on the cryptocurrency market, enabling our readers to make informed decisions in this ever-changing landscape.
Our editorial team of more than 70 crypto professionals works to maintain the highest standards of journalism and ethics. We follow strict editorial guidelines to ensure the integrity and credibility of our content.
Whether you’re looking for breaking news, expert opinions, or market insights, Cryptonews has been your go-to destination for everything cryptocurrency since 2017.
Camila Karam 
Eric Huffman 
Ihssan El Medkouri 
Connor Brooke