What are ERC-20 tokens?

09.08.2022

Beginner

#ERC-20 #Ethereum #Kriptorium: Ethereum #tokens

Key facts about ERC-20

ERC-20 is a popular standard for smart contracts on the Ethereum blockchain. It sets the rules to follow when writing a contract that defines the parameters and issuance of a new user token.
The standard greatly simplified the creation of new cryptocurrencies.
Different ERC-20 tokens can be sent and stored at the same address on the Ethereum network.
Letting any developer issue a digital asset without launching a separate blockchain was a turning point in crypto history.

What does ERC-20 stand for?

ERC (Ethereum Request for Comments) is the name of the official protocol for proposing improvements to the Ethereum network. “20” is the ordinal number of the proposal.

How and when did ERC-20 emerge?

The proposal to introduce a single standard for user tokens was first published in November 2015. Its authors were Ethereum’s creator Vitalik Buterin and developer Fabian Vogelsteller.

ERC-20 became the guide for creating fungible tokens—identical tokens that can be exchanged one for another.

Although ERC-20 tokens operate within a framework set by the Ethereum team, that framework is broad enough to give developers significant flexibility.

Why was the ERC-20 standard needed?

Bitcoin set the paradigm for other crypto projects: to issue a digital currency, you first had to launch a separate blockchain.

Ethereum broke that rule. With smart contracts, any developer could issue a token and give it useful functions within their application.

However, before ERC-20 there was a compatibility problem among tokens, as each had a unique smart contract. In other words, for an exchange or wallet to support a token, its creators had to write entirely new code each time.

As the number of tokens grew, support became increasingly problematic and time-consuming. A standard protocol for all tokens was created to solve this.

ERC-20 greatly simplified and unified token issuance within a single network. Along with smart contracts, the standard became a universal way to build and monetise blockchain-based applications. Thus Ethereum became the first blockchain platform in history.

Which tokens use the ERC-20 standard?

Many popular cryptocurrencies follow the ERC-20 standard. It is especially widespread in decentralised finance (DeFi) and adjacent fields. ERC-20 is also used for governance tokens in popular crypto projects. Here are just a few examples:

Maker (MKR)
Tether (USDT)
Chainlink (LINK)
The Sandbox (SAND)
The Graph (GRT)
Uniswap (UNI)
Axie Infinity (AXS)
Aave (AAVE)
ApeCoin (APE)
Basic Attention Token (BAT)
Compound (COMP)
OMG Network (OMG)
yearn.finance (YFI)
1inch (1INCH)
Enjin Coin (ENJ)

Where to store ERC-20 tokens?

Popular wallets for ERC-20 tokens include MetaMask, Trust Wallet, Exodus and MyEtherWallet. Some wallet interfaces show only the ETH balance, even though an address may also hold ERC-20s. In that case, simply export the address to a wallet with full support for the required asset.

Where to view ERC-20 transfer details?

Transaction details for any ERC-20 token can be viewed in an Ethereum block explorer, for example on Etherscan. There, in a separate section, you will also find on-chain data on all assets using this standard. A token’s page shows the number of holders, token distribution by address, and a link to the asset’s smart contract.

What are the main features of the ERC-20 protocol?

The standard defines six mandatory and three optional (but recommended) parameters for any smart contract.

Among the mandatory parameters:

the function totalSupply, which defines the total token issuance and ensures no new tokens can be created once the maximum is reached;
balanceOf defines the initial number of tokens assigned to a specific address. Usually this is the issuer’s address.

The standard also describes two methods for moving tokens. The transfer function handles sending tokens to users, while transferFrom is required for asset transactions.

Two more functions are used to validate the previous transfer methods:

approve is used to check that, based on the total supply, a smart contract can distribute tokens;
allowance is required to verify that there is a sufficient balance to send tokens to another address.

Optional parameters include the token’s name and ticker, as well as the definition of the maximum number of decimal places (for example, bitcoin has eight such digits—1.00000000 BTC).

This small set of easy-to-implement parameters allows a single codebase to interact with any ERC-20 smart contract.

What are the risks of using ERC-20 tokens?

Because ERC-20 tokens are effectively smart contracts, they carry certain risks despite their efficiency. For example, a smart contract cannot be changed once deployed. It may also contain bugs and vulnerabilities.

One of the best-known cases was the hack of The DAO, in which $50 million of investors’ cryptocurrency was stolen; the consequences had to be remedied with an Ethereum hard fork.

In rare cases the standard is abused by scammers: they intentionally include parameters in a token’s contract to steal holders’ funds or to run a pump-and-dump scheme.

Frequently asked questions

What is an ERC-20 wallet?

This is an application for storing and transacting cryptocurrencies that can handle ERC-20 tokens. Usually, any wallet with declared support for the Ethereum network.

What is the difference between ERC-20 and TRC-20?

ERC-20 is the standard for tokens issued on the Ethereum blockchain, whereas TRC-20 refers to cryptocurrencies created on the Tron blockchain. The best-known TRC-20 token is the Tether (USDT) stablecoin, which is also issued on other blockchains.

What is the difference between ERC-20 and BEP-20?

BEP-20 is the token standard on the BNB Chain (Binance Smart Chain), while only cryptocurrencies on the Ethereum network can have the ERC-20 standard.

What is ERC?

ERC is the abbreviation for Ethereum Request for Comment, a standard for code updates to the Ethereum protocol. Each update has its own ordinal number. ERC-20 was adopted in 2017; it introduced today’s popular token standard on the Ethereum network.