Ethereum is a leading blockchain platform in the cryptocurrency industry, enabling developers to build decentralized applications (dApps) and smart contracts. As Ethereum's adoption grew, the need for standardized token interactions became evident. ERC20 emerged as the solution, establishing a universal protocol for fungible tokens on the Ethereum blockchain.
In this guide, we’ll explore ERC20 tokens—their significance, key features, and real-world applications.
Understanding ERC20 Tokens
ERC20 (Ethereum Request for Comment 20) is a technical standard for creating interchangeable tokens on Ethereum. Fungible tokens, like ERC20, are identical and mutually exchangeable (e.g., 1 USDT = 1 USDT), unlike non-fungible tokens (NFTs).
Notable ERC20 Tokens
Here are some prominent examples:
- Tether (USDT): A USD-pegged stablecoin.
- USD Coin (USDC): A regulated stablecoin backed by Circle and Coinbase.
- Polygon (MATIC): A scaling solution for low-cost dApps.
- Shiba Inu (SHIB): A meme token with a decentralized community.
- Uniswap (UNI): The governance token for the Uniswap DEX.
All ERC20 transactions require gas fees (paid in ETH) to process. 👉 Learn more about Ethereum gas fees.
Proposed in 2015 by Vitalik Buterin and Fabian Vogelsteller, ERC20 standardized token creation, ensuring interoperability across wallets, exchanges, and dApps. Its rules include functions for transfers, balance checks, and spending approvals.
Key Features of ERC20 Tokens
1. Uniformity
ERC20 tokens adhere to a consistent protocol, enabling seamless integration across Ethereum-based platforms.
2. Easy Exchangeability
Their standardized format allows effortless trading on decentralized exchanges (DEXs) like Uniswap.
3. Interoperability
ERC20 tokens interact smoothly with other smart contracts and dApps, fostering ecosystem connectivity.
Core Functionalities
- Token Transfers: Send/receive tokens between addresses.
- Balance Checks: View token holdings in a wallet.
- Supply Data: Access total/remaining token supply.
Use Cases of ERC20 Tokens
1. Fundraising (ICOs)
Projects launch ERC20 tokens to raise capital via Initial Coin Offerings (ICOs).
2. Governance
Tokens like UNI enable voting in Decentralized Autonomous Organizations (DAOs).
3. Utility Tokens
Used for staking, transaction fees, or accessing dApp features.
4. Stablecoins
USD-pegged tokens (e.g., USDT, USDC) facilitate stable transactions.
5. DeFi Applications
ERC20 tokens power decentralized lending, yield farming, and DEXs. 👉 Explore DeFi platforms.
Conclusion
ERC20 tokens revolutionized Ethereum by standardizing token creation, driving interoperability, and fueling innovations like DeFi. Whether you're a developer or investor, understanding ERC20 is essential for navigating the crypto landscape.
FAQs
1. Are ERC20 tokens only used on Ethereum?
Yes, they’re native to Ethereum but can be bridged to other blockchains.
2. What’s the difference between ERC20 and ERC721?
ERC20 tokens are fungible (interchangeable), while ERC721 tokens are NFTs (unique).
3. How do I store ERC20 tokens?
Use Ethereum-compatible wallets like MetaMask or Trust Wallet.
4. Why do ERC20 transactions fail?
Common causes include insufficient gas fees or smart contract errors.
5. Can ERC20 tokens be mined?
No—they’re minted via smart contracts, not mined like ETH.