ERC-20 Token
A technical standard for fungible tokens created on the Ethereum blockchain, ensuring compatibility across decentralised platforms and exchanges.
ERC-20 Token: A Technical Standard for Fungible Tokens on Ethereum
The ERC-20 token standard is a cornerstone of the Ethereum blockchain, defining rules for creating fungible tokens. These tokens are interchangeable, with each unit holding the same value as another, much like traditional currencies or commodities.
Key Features of ERC-20 Tokens
Interoperability: ERC-20 tokens are compatible with wallets, decentralized exchanges (DEXs), and applications built on Ethereum. This standardization ensures seamless integration across the ecosystem.
Fungibility: Each token unit is identical in value and properties, simplifying their use in payments, staking, and trading.
Efficiency: ERC-20 simplifies token creation and management, reducing the need for custom smart contracts.
How ERC-20 Works
The ERC-20 standard consists of six mandatory functions and three optional ones within a smart contract. These define key functionalities like:
Total Supply: The total amount of tokens in circulation.
Balance Of: The token balance of a specific address.
Transfer: Moving tokens from one user to another.
Approve and TransferFrom: Allowing third parties (e.g., smart contracts) to transfer tokens on a user’s behalf.
Allowance: Checking the remaining tokens that a third party can spend.
By adhering to these standards, developers create tokens that work predictably across the Ethereum network.
Applications of ERC-20 Tokens
ERC-20 tokens are widely used for:
Utility Tokens: Powering decentralized applications (dApps).
Stablecoins: Pegged to assets like fiat currencies (e.g., USDT, USDC).
Governance Tokens: Enabling holders to vote on protocol decisions.
Tokenized Assets: Representing real-world assets like gold or real estate.
Limitations of ERC-20
While highly versatile, ERC-20 tokens have some drawbacks:
Gas Fees: Transactions can become costly during network congestion.
Approval Mechanism Complexity: Requiring separate "approve" and "transferFrom" steps can confuse users.
ERC-20 tokens revolutionized how assets are created and managed on the blockchain, forming the backbone of decentralized finance (DeFi) and tokenized ecosystems. Their standardized framework continues to drive innovation, paving the way for future advancements in blockchain technology.
