What Is ERC-20: Simplifying Development on the Ethereum Blockchain

Ethereum was among the first open-source platforms to empower developers to create and deploy decentralized applications (DApps). Although Ethereum offers significant advantages, its architecture presents challenges such as congestion during periods of high demand, leading to elevated transaction fees and longer processing times. To address these issues, ERC-20 tokens were introduced—a standard engineered to enhance efficiency and streamline building on the Ethereum blockchain.

What Is an ERC-20 Token?

ERC-20 tokens are fungible digital assets native to the Ethereum blockchain. This technical standard supports smart contract development, enabling developers to create and launch tokens on Ethereum. The ERC-20 specification defines a set of rules developers must follow to ensure tokens are compatible and allow users and developers to engage seamlessly with any service, application, or protocol on the Ethereum network. Each ERC-20 token has a specific function within the ecosystem and can be exchanged across the network, simplifying development and facilitating interaction between applications and tokens.

History of the ERC-20 Token Standard

Fabian Vogelsteller first proposed the ERC-20 token standard on Ethereum’s GitHub page, labeling it “Ethereum Request Comment.” The number “20” was assigned as it was the twentieth comment. After the Ethereum developer community approved the proposal, it was implemented as the “Ethereum Improvement Proposal (EIP-20),” but became widely recognized as ERC-20. Since its adoption in 2015, all smart contract tokens on the Ethereum blockchain are required to comply with these guidelines.

How Do ERC-20 Tokens Work?

The ERC-20 standard operates through smart contracts—predefined agreements that execute automatically when specific conditions are met. Smart contracts powered by the Ethereum Virtual Machine (EVM) function like vending machines, programmed to perform set actions under certain conditions. When these instructions are met, ERC-20 tokens can be created and issued. These tokens are fungible, meaning each token is identical in value to another. ERC-20 tokens not only enable seamless asset exchange but also grant governance rights to holders. They can be staked to help maintain network operations, rewarding stakers with additional tokens and offering potential passive income.

Benefits of the ERC-20 Token Standard for Ethereum

The introduction of the ERC-20 standard transformed Ethereum and the broader cryptocurrency market. Key benefits include interoperability, which enables tokens adhering to the standard to interact and exchange assets effortlessly, supporting faster token transfers and cost-effective swaps. For security, ERC-20 tokens leverage Ethereum’s core features—decentralization, immutability, and transparency—to safeguard against malicious manipulation of token supply, transfers, and validation processes.

Transparency is another major advantage, with all ERC-20 token transactions recorded on the Ethereum blockchain for easy tracking and verification. High liquidity allows ERC-20 tokens to be bought and sold on centralized and decentralized exchanges, making them attractive to investors. Additionally, ERC-20 tokens are customizable and user-friendly, allowing creators to set total supply, add unique functions, define decimal points, and select a symbol, with streamlined management using tools like MetaMask and MyEtherWallet.

Drawbacks of the ERC-20 Token Standard

Despite its strengths, the ERC-20 standard has limitations. Its restricted flexibility means that while compatibility and stability are improved, certain complex functions cannot be performed by ERC-20 tokens. High transaction fees present another challenge, as gas costs can be significant depending on Ethereum network activity, making transaction expenses unpredictable.

Lack of universal acceptance is also an issue, as some cryptocurrency exchanges do not support ERC-20 tokens, limiting liquidity. Furthermore, users can lose tokens permanently if they send ERC-20 tokens to a smart contract not designed to accept them, since not all recipient contracts are programmed to recognize or process ERC-20 tokens.

Popular ERC-20 Tokens

Since ERC-20’s adoption, numerous tokens have launched on the market. Prominent ERC-20 tokens include Tether (USDT), a stablecoin pegged to the US dollar at a 1:1 ratio, enabling faster and cheaper transactions; Uniswap (UNI), the native token of a decentralized exchange that operates with an automated market maker model; Maker (MKR), the governance token for MakerDAO, giving holders control over protocol management; and other native tokens from leading exchanges that fulfill various roles within their ecosystems.

Other ERC Token Standards

While ERC-20 is the most widely used standard, several others exist. ERC-165 verifies if a contract supports a specific interface, enabling smart contract interoperability. ERC-621 lets authorized project members adjust token supply post-launch. ERC-777 introduces emergency recovery options for lost private keys and enhances transaction privacy. ERC-721 is designed for non-fungible tokens (NFTs), while ERC-223 aims to recover tokens sent to incorrect addresses. ERC-1155 allows developers to deploy more efficient transfer tokens, reducing transaction fees and supporting both NFTs and utility tokens.

Conclusion

The launch of the ERC-20 token standard was a pivotal moment for the Ethereum network, simplifying development and expanding opportunities. Created to address network congestion and high transaction fees, ERC-20 also enhances interoperability, opening new avenues for development on Ethereum and other blockchains. ERC-20 is complemented by additional standards—such as ERC-4337, ERC-7579, and ERC-6551—that further extend the network’s functionality and capabilities.

FAQ

What Are ERC-20 Tokens?

ERC-20 tokens are fungible digital assets on the Ethereum blockchain. They follow a standardized protocol for cross-token compatibility and support decentralized applications and smart contracts.

Is ERC-20 the Same as ETH?

No, ERC-20 refers to a token standard on the Ethereum blockchain, while ETH is the network’s native cryptocurrency. They share the same address format but are separate assets.

Is BTC an ERC-20 Token?

No, BTC is not an ERC-20 token. Bitcoin is an independent cryptocurrency with its own blockchain. However, tokenized versions of BTC exist on Ethereum as ERC-20 tokens.

What Is the Value of the ERC-20 Coin?

As of 2025-12-05, the ERC-20 coin is valued at $0.122188. This is the latest available price, reflecting its current market value.