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What are ERC-20 tokens
ERC-20 tokens are sets of “interchangeable” digital tokens operating on the Ethereum network. “Replaceable” here means that each token in the set is indistinguishable from all other tokens in the set.
This is analogous to how one US dollar is virtually indistinguishable from any other US dollar (at least in the digital realm).
When it comes to ERC-20 tokens, each set is distinguished by a ticker symbol, for example ABC or XYZ.
For example, there may be a set of 1 million ABC tokens and another set of 10 million XYZ tokens.
The barrier to creating ERC-20 token sets is low (in fact, it’s just the deployment of a relatively simple “contract” on the Ethereum network), so the number of sets is measured in thousands.
For this reason, most kits actually have a very small cost. However, the cost of some of them is estimated in billions.
How the Standard Started
The ERC-20 project was proposed by developer Fabian Vogelsteller in 2015 to solve the problem of the need to create a standard for smart contracts on the Ethereum blockchain.
Vogelsteller submitted this proposal via the project page on Github in the form of a request for comment (ERC) to Ethereum. Since it was the twentieth comment, it was assigned the designation ERC-20.
In accordance with the procedure used by the Ethereum developer community, the proposal was approved and implemented in 2017 as Ethereum Improvement Proposal 20 (EIP-20).
However, it is still called ERC-20, because that is how it was known before the approval.
Ethereum Improvement Proposal. “ERC-20: Token Standard”.
Since this proposal has been approved and implemented, smart contract tokens implemented on the Ethereumblockchain must comply with this standard if developers want them to be interchangeable.
Goals of ERC-20
The ERC-20 standard plays an important role in the blockchain: it defines a general list of rules that Ethereum tokens using smart contracts must adhere to.
Among these rules are the procedure for transferring tokens, the procedure for approving transactions, user access to token data and the total supply of tokens.
Thus, this token standard allows developers of all types to accurately predict how new tokens will function within the entire Ethereum system.
This simplifies the task of developers: they can continue their work, knowing that every existing project will not have to be redone when a new token is issued.
In addition, new projects will not need to worry about compatibility with old projects if the token complies with the rules.
Fortunately, most token developers adhere to the ERC-20 rules, which means that most tokens issued in Ethereum comply with ERC-20.
BEP-2 vs. ERC-20
ERC-20 is the standard for tokens in the Ethereum ecosystem. Many other tokens, blockchains and ecosystems have emerged based on Ethereum. One of such ecosystems and blockchains is the Binance cryptocurrency exchange.
The team behind Binance has created its own blockchain – Binance Chain – based on the Ethereum fork.
Then the Binance developers created their own standard for tokens created using their blockchain. This standard is called BEP-2 and is similar to ERC-20 in that it defines the procedure for creating tokens for use on the Binance Chain.
In addition, Binance has created a vicious chain that works in parallel with the Binance Chain and is called the Binance Smart Chain.
This chain is compatible with ERC-20 tokens, the Ethereum virtual machine and the Binance chain, but it uses the newer BEP-20 standard, which provides inter-chain compatibility.
What Does ERC-20 Mean?
ERC-20 is the Ethereum Request for Comment, number 20. ERC-20 is the standard for smart contract tokens created using Ethereum.
What is the difference between ETH and ERC-20?
Ether (ETH) is a proprietary token used in the blockchain and the Ethereum network as a payment system for verifying transactions. ERC-20 is a standard for creating interchangeable tokens with smart contract support for use in the Ethereum ecosystem.
What is an ERC-20 wallet?
An ERC-20 wallet is a wallet that allows you to manage tokens that comply with the ERC-20 standard.
The Bottom Line
In order to eliminate the growing concerns about the impossibility of transferring several tokens on the Ethereum blockchain, a proposal on standards was put forward and implemented in 2015.
This standard, called Ethereum Request for Comment (ERC) 20, regulates the creation of tokens in such a way that tokens compatible with the Ethereumblockchain are interchangeable.
Investments in cryptocurrencies and other initial coin offerings (“ICOs”) are highly risky and speculative, and this article is not a recommendation byInvestopedia orthe author on investing in cryptocurrencies or other ICOs.
Since each person’s situation is unique, it is imperative to consult with a qualified specialist before making any financial decisions. Investopedia makes no representations and makes no guarantees regarding the accuracy and timeliness of the information contained here.
Correction – May 11, 2023: In a previous version of this article, the name of the developer who proposed ERC-20 was incorrectly listed as FabinVogelstellar. The correct name is Fabian Vogelsteller.
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ERC-20 Contents
ERC-20 is a list of functions and events that must be implemented in a token in order for it to be considered ERC-20 compliant.
These functions (in ERC they are called methods) describe what should be included in the token supporting the smart contract, and events describe the action. The functions that a token should have include:
Total Supply
The total number of tokens that will ever be issued.
Balance
The account balance of the token holder.
Transfer
Automatically transfers the specified number of tokens to the specified address for transactions using this token.
Transfer From
Automatic execution of transfers of the specified number of tokens from the specified address for transactions using the token.
Approve
Allows the user to withdraw a specified number of tokens from a specified account within a certain amount.
Allowance
Returns to the owner the specified number of tokens from the spending person.
