The Ethereum blockchain hosts over five token standards, including ERC-1155, ERC-721, ERC-4626, and ERC-20. These standards define rules and requirements for tokens to be compatible with Ethereum. For instance, ERC-721 governs non-fungible tokens (NFTs), while ERC-20 is the standard for fungible tokens.
ERC-20 enables the creation and issuance of smart contracts on Ethereum, supporting crowdfunding, token sales, and decentralized applications (dApps). As one of Ethereum’s most critical standards, this guide explores its fundamentals, benefits, and use cases.
What is Ethereum?
Ethereum is an open-source blockchain network that allows developers to build and deploy smart contracts and dApps. The platform currently hosts over 533,000 smart contracts, enabling trustless interactions without centralized intermediaries.
Unlike traditional systems controlled by single entities, Ethereum operates on a decentralized network of nodes that collectively maintain the blockchain ledger. Its native cryptocurrency, Ether (ETH), facilitates transactions and incentivizes miners to secure the network.
Crypto Tokens vs. Cryptocurrencies
While often used interchangeably, crypto tokens and cryptocurrencies differ:
- Cryptocurrencies: Native digital currencies like Bitcoin or ETH function as mediums of exchange.
- Crypto Tokens: Secondary assets built on existing blockchains (e.g., Ethereum) that represent ownership, access, or utility within dApps.
Understanding the ERC-20 Standard
ERC-20 (Ethereum Request for Comment #20) is a technical standard governing token creation on Ethereum. It ensures compatibility by defining mandatory functions and events for tokens, such as:
- Transferring tokens between addresses.
- Checking account balances.
- Approving third-party token spending.
👉 Explore ERC-20 token integrations
How ERC-20 Tokens Work
- Token Contract: Deployed as a smart contract on Ethereum, containing the token’s logic and metadata (name, symbol, decimals).
- Fungibility: Each ERC-20 token is interchangeable, enabling standardized units.
- Ownership Tracking: Balances are mapped to Ethereum addresses within the contract.
Transactions update balances after verifying the sender’s funds, ensuring secure transfers.
Key ERC-20 Functions
Developers must implement these functions for compliance:
| Function | Purpose |
|---|---|
totalSupply() | Returns the total token supply. |
balanceOf() | Checks an address’s token balance. |
transfer() | Moves tokens to another address. |
transferFrom() | Enables secure third-party transfers (e.g., for exchanges). |
approve() | Authorizes another address to spend tokens (up to a set limit). |
allowance() | Checks remaining tokens a spender can withdraw on behalf of an owner. |
Events: Transfer and Approval log balance/allowance changes.
Gas Fees in Ethereum
Every Ethereum transaction consumes gas, a unit measuring computational effort. Key points:
- Gas fees = Gas limit × Gas price (denominated in Gwei).
- Higher gas prices prioritize transactions during network congestion.
- EVM (Ethereum Virtual Machine) executes smart contracts, updating the blockchain state.
Advantages of ERC-20 Tokens
- Global Adoption: Compatible with major wallets, exchanges, and dApps.
- Standardization: Ensures seamless interoperability across platforms.
- Security: Immutable smart contracts reduce fraud risks.
- Liquidity: High marketability on decentralized/centralized exchanges.
- Developer Support: Extensive resources and community tools.
FAQs
1. What is the purpose of ERC-20 tokens?
ERC-20 tokens standardize asset creation on Ethereum, enabling crowdfunding, dApp utilities, and interoperability.
2. How do ERC-20 tokens differ from ETH?
ETH is Ethereum’s native currency for transactions, while ERC-20 tokens represent custom assets/utilities built atop Ethereum.
3. Can I store ERC-20 tokens in any Ethereum wallet?
Yes, but choose wallets like MetaMask or Blade Wallet that explicitly support ERC-20.
4. Are all Ethereum tokens ERC-20 compliant?
No. Other standards like ERC-721 (for NFTs) exist.
5. How do I buy ERC-20 tokens?
Purchase via exchanges or use fiat on-ramps in wallets like Blade Wallet.
6. What’s the role of gas in ERC-20 transactions?
Gas fees compensate miners for processing token transfers/smart contracts.
7. What’s the future of ERC-20?
Continued growth in DeFi, tokenized assets, and cross-chain integrations.
Conclusion
ERC-20’s standardized framework has fueled Ethereum’s ecosystem, powering everything from stablecoins to governance tokens. By understanding its functions, gas mechanics, and advantages, users and developers can leverage ERC-20 tokens for diverse blockchain applications.
For a secure ERC-20 experience, consider non-custodial wallets like Blade Wallet, which offers cross-chain swaps and CertiK-audited security.