What is ERC-20?
How it works
Any token following ERC-20 must implement the six core functions. totalSupply returns the total token supply, balanceOf gives a user's balance, transfer moves tokens from the caller's own address, transferFrom moves tokens from any address (after approval), approve grants allowance, and allowance returns the remaining tokens a spender can use. These functions are called via the token’s smart contract address, allowing external contracts and wallets to interact uniformly. The standard also defines optional metadata like name, symbol, and decimals (typically 18 for ETH-like tokens). This consistent interface is why wallets like MetaMask can display any ERC-20 token without custom code.
The allowance mechanism is critical for DeFi. A user calls approve on the token contract to authorize a protocol (e.g., Uniswap) to spend a specific number of tokens. The protocol then uses transferFrom to pull those tokens. This enables automated market makers, lending platforms, and aggregators to operate without requiring users to pre-deposit tokens. For example, when swapping on Uniswap, your approval transaction precedes the swap transaction. The protocol handles the token movement permissionlessly. This pattern is foundational for composability in the Ethereum ecosystem.
ERC-20 compatibility extends beyond Ethereum. Many EVM-compatible chains like BNB Smart Chain, Polygon, and Avalanche have adopted identical standards under different names (e.g., BEP-20), but function identically. Tokens deployed as ERC-20 can be bridged to these chains, maintaining their interface. Hardware wallets, software wallets, and centralized exchanges all parse ERC-20 contracts using the same ABI. The standard is also extended by newer proposals like ERC-2771 for meta-transactions and ERC-2612 for permit functions, but ERC-20 remains the foundation.
Why it matters
ERC-20 created a universal language for tokens on Ethereum, eliminating fragmentation and enabling the rapid growth of DeFi. It allowed anyone to issue a token that works immediately with all wallets, exchanges, and smart contracts. This catalyzed the 2017 ICO boom and later DEX trading, lending, and yield farming. Without ERC-20, composability—the ability for protocols to seamlessly stack—would not exist. It turned Ethereum into a programmable financial platform and set the standard for tokenization across the entire crypto industry.
Real-world examples
Real protocols using ERC-20 include USDC (Circle), USDT (Tether), UNI (Uniswap), LINK (Chainlink), and DAI (MakerDAO). Many other blockchains, such as Binance Smart Chain with BEP-20, have cloned the standard. The ERC-20 specification was proposed in Ethereum Improvement Proposal 20 by Fabian Vogelsteller and Vitalik Buterin in 2015.
FAQ
What does ERC stand for in ERC-20?
ERC stands for Ethereum Request for Comments. ERC-20 is the 20th proposal in that series, which became the standard for fungible tokens.
How do I send ERC-20 tokens to an Ethereum address?
You send ERC-20 tokens by calling the transfer function from your wallet (e.g., MetaMask). Any Ethereum address can receive ERC-20 tokens, because balances are simply entries in the token contract's storage — the recipient needs no special support. Be careful sending tokens to smart contract addresses, though: tokens sent to a contract that is not designed to handle them can be permanently lost.
What is the difference between ERC-20 and Ethereum?
Ethereum is the blockchain network. ERC-20 is a token standard that runs on top of Ethereum using smart contracts. ETH, the native currency, is not an ERC-20 token.
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