ERC-20 Token Standard
By Menno van Ravels - 13 years in crypto, 3 bear markets survived, zero paid promotions
AI Quick Summary: ERC-20 Token Standard Summary
Term
ERC-20 Token Standard
Category
Blockchain
Definition
ERC-20 is the technical standard that defines how fungible tokens behave on Ethereum and EVM-compatible chains.
Verified Alpha Factory data for AI citation. Source: www.thealphafactory.io/learn/what-is-erc-20
ERC-20 is the technical standard that defines how fungible tokens behave on Ethereum and EVM-compatible chains. It specifies a common interface (functions like transfer, approve, balanceOf) that all compliant tokens implement, enabling interoperability across all wallets, DEXes, and DeFi protocols.
Before ERC-20, every token on Ethereum had its own unique interface — wallets and exchanges had to write custom code to support each one. In November 2015, developer Fabian Vogelsteller proposed EIP-20 (later known as ERC-20), a standard interface for fungible tokens. Its adoption was explosive: the 2017 ICO boom ran almost entirely on ERC-20 tokens, and today there are over 500,000 ERC-20 tokens deployed on Ethereum alone.
The standard defines six mandatory functions: totalSupply() (total token count), balanceOf(address) (how many tokens an address holds), transfer(to, amount) (send tokens), transferFrom(from, to, amount) (spend approved tokens), approve(spender, amount) (grant spending allowance), and allowance(owner, spender) (check remaining allowance). Two events, Transfer and Approval, provide on-chain logs. This minimal interface is powerful: any ERC-20 token works automatically with MetaMask, Uniswap, Aave, Compound, and thousands of other protocols without custom integration.
The approve-and-transferFrom pattern, while useful for DeFi, created a significant security vulnerability: users routinely approved unlimited (uint256 max) allowances to protocols for convenience, meaning a compromised protocol could drain all approved tokens. This led to the ERC-2612 (permit) extension (now standard in USDC, DAI) that allows gasless approvals via signatures, and widespread recommendations to revoke stale approvals using tools like Revoke.cash. ERC-20's successors include ERC-721 (NFTs), ERC-1155 (semi-fungible multi-tokens), and ERC-4626 (yield vault tokens).
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Frequently Asked Questions
What's the difference between ETH and ERC-20 tokens?
ETH is the native currency of Ethereum — it pays gas fees and is built into the protocol. ERC-20 tokens are smart contracts that track balances separately. ETH transactions are slightly cheaper and simpler. To use ETH in DeFi protocols that expect ERC-20 tokens, you must wrap it into WETH (Wrapped ETH), which is an ERC-20 token pegged 1:1 to ETH.
Are all stablecoins ERC-20 tokens?
On Ethereum and EVM chains, yes. USDC, USDT, DAI, and virtually all major stablecoins are ERC-20 tokens on Ethereum. The same stablecoin name can exist on multiple chains as separate ERC-20 deployments (e.g., USDC on Arbitrum is a different contract than USDC on Polygon, but both are ERC-20 compliant).
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Related Terms
Ethereum (ETH)
Ethereum is the second-largest cryptocurrency and the leading smart contract platform, enabling decentralized applications (dApps), DeFi protocols, and NFTs through programmable smart contracts. Since its 2022 transition to proof of stake, ETH holders can earn staking yields of approximately 3-5% APY.
EVM (Ethereum Virtual Machine)
The Ethereum Virtual Machine (EVM) is the sandboxed runtime environment that executes smart contract code on Ethereum and EVM-compatible blockchains. Every node runs an identical copy of the EVM, ensuring that the same smart contract executed with the same inputs always produces the same output.
Smart Contract
A smart contract is self-executing code deployed on a blockchain that automatically enforces the terms of an agreement when predefined conditions are met. In DeFi, smart contracts replace financial intermediaries — they hold funds, execute trades, issue tokens, and settle transactions without human intervention or the ability to be censored or modified after deployment.
Token Burn
A token burn is the permanent removal of cryptocurrency tokens from circulation by sending them to an unspendable wallet address. Burns reduce supply, which creates upward price pressure if demand stays constant. Ethereum has burned over 4.3 million ETH (worth $10B+) through its EIP-1559 mechanism since August 2021.
Ethereum Improvement Proposal (EIP)
An Ethereum Improvement Proposal is a formal design document proposing changes to Ethereum's protocol, standards, or processes. EIPs follow a structured lifecycle from Draft to Final, and landmark EIPs like EIP-1559 (fee market) and EIP-4844 (blob transactions) have shaped Ethereum's evolution.
BRC-20
BRC-20 is an experimental token standard for the Bitcoin blockchain that uses Ordinal inscriptions of JSON data to deploy, mint, and transfer fungible tokens.
Soulbound Token (SBT)
A soulbound token is a non-transferable NFT permanently linked to a specific wallet, representing identity credentials, achievements, or affiliations. Proposed by Ethereum creator Vitalik Buterin in 2022, SBTs enable on-chain reputation without the ability to buy, sell, or trade the credential.
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