What is ERC-20? A Guide to the Ethereum Token Standard

What is ERC-20? A Guide to the Ethereum Token Standard

With the rise of crypto, the ERC-20 smart contract standard has become crucial in the Ethereum ecosystem, due to its applications in decentralized finance, governance, and more. So what is the ERC-20 token standard? Why is it important and relevant? How do you create an ERC-20 token?

In this blog post, we’re going to demystify everything you need to know about the ERC-20 token standard. We’ll cover what ERC-20 is, what the uses cases of ERC-20 tokens are, and how you can get started with ERC-20 tokens and smart contracts. Let’s dive in.

What is the ERC-20 Token Standard?

ERC-20 is a fungible token standard on the Ethereum blockchain. It enables to creation of fungible tokens, which are interchangeable with one another — contrary to non-fungible tokens (NFTs), which are unique and non-interchangeable.

The ERC-20 standard is critical because it provides a common interface for tokens, reducing confusion and ensuring compatibility between various tokens in the Ethereum ecosystem. This standard allows developers to create tokens that can be used with other products and services, making Ethereum a more versatile and adaptable platform.

ERC-20 tokens play a significant role in the blockchain industry, as they can represent various assets, such as reputation points, digital currencies, shares in a company, or even physical commodities like gold. This versatility enables the creation of various decentralized applications (dApps) and projects built on the Ethereum network.

How does the ERC-20 token standard work?

The ERC-20 standard defines a set of functions and events that must be implemented in a smart contract for it to be considered compliant. These functions enable developers to transfer tokens, check token balances, and manage token supply, among other capabilities.

ERC-20 ensures that every token created on the Ethereum blockchain follows a specific structure, allowing them to interact seamlessly with various applications, wallets, and exchanges. This standard simplifies token management and reduces the risk of compatibility issues between different projects in the ecosystem.

You can learn more about the technical details in Ethereum’s ERC-20 docs.

Benefits of ERC-20 Tokens

The ERC-20 token standard offers several benefits for creating fungible tokens on the Ethereum blockchain:

  1. Standardization: ERC-20 defines a common set of rules and functions for token creation, simplifying the development process and ensuring consistency across different tokens. ERC-20 tokens leverage the power of Ethereum's smart contracts, allowing for complex, automated transactions and decentralized applications. And since ERC-20 provides a standardized framework, developers can save time and resources by focusing on their token's unique features instead of building from scratch.
  2. Interoperability: ERC-20 tokens can easily interact with various wallets, exchanges, and decentralized applications (dApps) on the Ethereum network, increasing their utility and accessibility. As the most popular token standard, ERC-20 simplifies integration with third-party services like exchanges, payment processors, or portfolio trackers.
  3. Security: The ERC-20 standard has been extensively tested and reviewed by the Ethereum community, leading to improved security and reliability for compliant tokens.
  4. Programmability: ERC-20 tokens can be tailored to serve a specific purpose or function, making them suitable for a wide range of applications, from utility tokens to stablecoins and governance tokens. ERC-20 tokens can incorporate programmable features, such as automated rewards, staking mechanisms, or token burns, enabling innovative business models and use cases.
  5. Blockchain transparency: The Ethereum blockchain's transparent and immutable nature allows for easy tracking and verification of ERC-20 token transactions, increasing trust and reducing fraud. ERC-20 tokens operate on the decentralized Ethereum network, reducing the reliance on central authorities and fostering trustless, peer-to-peer transactions.
  6. Borderless transactions: ERC-20 tokens facilitate seamless, borderless transactions without the need for intermediaries, making them ideal for international remittances, global crowdfunding, and cross-border payments. ERC-20 tokens can be easily accessed, traded, and utilized by anyone with an internet connection and an Ethereum wallet, lowering barriers to entry and enabling global participation.
  7. Cost-effectiveness: Creating and managing ERC-20 tokens is often more cost-effective than traditional financial instruments or alternative blockchain tokens, as they leverage Ethereum's existing infrastructure.
  8. Rapid innovation: The widespread adoption and versatility of ERC-20 tokens have spurred rapid innovation in the blockchain and cryptocurrency space, leading to new financial products, services, and decentralized applications.

5 Use Cases for ERC-20 Tokens

Now that we understand the basics of the ERC-20 standard, let's dive into its various use cases and applications in the world of web3.

  1. Stablecoins: Tokens pegged to traditional currencies, such as USD Coin (USDC).
  2. Governance tokens: Tokens that grant holders voting rights in decentralized organizations, like Maker (MKR).
  3. Utility tokens: Tokens that provide access to a project's platform or services, such as Basic Attention Token (BAT) for the Brave browser ecosystem.
  4. Asset-backed tokens: Tokens representing ownership of physical or digital assets, like tokenized gold or real estate.
  5. In-game currencies and items: ERC-20 tokens can be used for virtual currencies or items within video games, streamlining the management of in-game economies.

ERC-20 tokens have reached mainstream adoption on the Ethereum ecosystem, and most tokens for the above applications are compliant with the ERC-20 standard. These include:

  1. USD Coin (USDC): A stablecoin pegged to the US dollar, providing price stability in the volatile world of cryptocurrencies.
  2. Chainlink (LINK): A utility token used to pay for services on the Chainlink decentralized oracle network.
  3. Maker (MKR): A governance token that grants voting rights in the MakerDAO ecosystem, influencing decisions related to the DAI stablecoin.
  4. Basic Attention Token (BAT): A utility token for the Brave browser ecosystem, rewarding users for viewing ads and supporting content creators.
  5. Decentraland (MANA): A virtual currency used within the Decentraland virtual world for purchasing virtual land, items, and services.
  6. Aave (AAVE): A governance and utility token for the Aave DeFi platform, allowing holders to participate in decision-making and earn staking rewards.
  7. 0x (ZRX): A utility and governance token for the 0x protocol, which facilitates decentralized token trading and exchange.
  8. Enjin Coin (ENJ): A token used to create, manage, and trade blockchain-based virtual assets for video games and other digital experiences.
Disclaimer: thirdweb does not endorse or promote any of the tokens listed in this content. The information provided is for educational purposes only and should not be considered financial advice. Please conduct your own research and consult a financial professional before making any investment decisions.

How to create an ERC-20 token smart contract

Creating an ERC-20 token typically requires writing, testing, and deploying a smart contract using the Solidity programming language.

Alternatively, you can use thirdweb Explore — a library of open-source, pre-built audited smart contracts to find battle-tested templates for ERC-20 smart contracts — with extensions & features based on your needs, all deployable in minutes:

ERC-20 Token

Token - ERC20 | Published Smart Contract
Create cryptocurrency compliant with ERC20 standard. Deploy Token in one click with thirdweb.

The Token contract is suited for creating a digital currency and is compliant with the ERC20 standard. It can be purchased & traded between users on an exchange, utilized to buy and sell NFTs in a marketplace, and more.

Use Cases & Examples

  • Create your own cryptocurrency
  • Sell your NFTs on the Marketplace in your custom token
  • Reward users with tokens for some action they take

ERC-20 Token Drop

Token Drop - ERC20 | Published Smart Contract
Release new ERC20 tokens for a set price. Deploy Token Drop in one click with thirdweb.

The Token Drop contract is a way of releasing your ERC20 tokens for a set price. It allows you to define the conditions for when and how your users can claim your tokens; including allowlists, release dates, and claim limits.

Use Cases & Examples

  • Release your new cryptocurrency for a set price such as 1 MATIC per token.
  • Allow a specific set of wallets to claim your ERC20 tokens before releasing them to the public.
  • Allow users to claim your tokens up until a specific date.

ERC-20 Airdrop

Airdrop ERC20 | Published Smart Contract
Airdrop ERC20 tokens or the chain’s native token to a list of recipients.. Deploy Airdrop ERC20 in one click with thirdweb.

Airdrop ERC20 tokens or the chain's native token (e.g. ether for Ethereum mainnet) to a list of recipients. The contract is suitable to use when you want to transfer ERC20 tokens or native tokens to a list of recipient addresses, where these recipients are not expected to individually claim their airdrop; they just receive it in a transfer.

ERC-20 Staking

StakeERC20 | Published Smart Contract
Contract for staking ERC20 tokens, for another ERC20 token as rewards.. Deploy StakeERC20 in one click with thirdweb.

This contract allows users to stake their ERC-20 tokens and get ERC-20 tokens as staking rewards (different from the staked tokens).

ERC-20 Split

Split | Published Smart Contract
Distribute funds among multiple recipients. Deploy Split in one click with thirdweb.

The Split contract lets you specify multiple wallet addresses that are recipients of any revenue or royalty split. The Split contract will store the funds, and when any user calls the distribute function, the funds will be distributed to the recipients according to the percentages you define.

Use Cases & Examples

  • Use as a "team wallet", where funds are distributed between the members of your team with set percentages
  • Share revenue from your primary minting in an NFT drop
  • Share revenue from royalty sales with members of your team, such as an artist

These ERC-20 smart contracts showcase the versatility and potential of the standard in the Web3 ecosystem. By leveraging these contracts, developers can create innovative solutions and unlock new use cases for ERC-20 tokens.

Frequently Asked Questions (FAQs)

Are all Ethereum tokens ERC-20 compliant?

No, not all Ethereum tokens are ERC-20 compliant. There are other token standards on Ethereum, such as ERC-721 and ERC-1155, which are used for different purposes like creating non-fungible tokens (NFTs).

Can I store ERC-20 tokens in any Ethereum wallet?

Yes, as long as the wallet supports the ERC-20 standard, you can store any ERC-20 token in it. Examples of popular Ethereum wallets that support ERC-20 tokens include MetaMask, Ledger, and Trezor.

How do I buy or trade ERC-20 tokens?

You can buy or trade ERC-20 tokens on various decentralized and centralized exchanges, such as Uniswap, SushiSwap, Binance, or Coinbase. Always make sure to use a reputable platform and follow the proper steps for buying or trading tokens.

Are ERC-20 tokens the same as Ether (ETH)?

No, ERC-20 tokens are separate digital assets created on the Ethereum blockchain, while Ether (ETH) is the native cryptocurrency of the Ethereum network.

Concluding thoughts: The future of ERC-20 tokens

ERC-20 tokens play a vital role in the Ethereum ecosystem, providing a standardized framework for creating and managing a wide variety of digital assets. With their versatility and ability to interact with numerous platforms and applications, ERC-20 tokens have transformed the way value is exchanged and utilized in web3 — further aligning incentives between companies and their users, and serving as a critical component in the development & expansion of the decentralized economy.

We hope this blog post has helped you better understand what the ERC-20 token standard is, what its use cases are on the blockchain, and how you can get started with ERC-20 smart contracts.

If you have any questions, join 33,000+ other builders in our Discord community, or reach out to the team directly for more info on how to get started with ERC-20.

And if you want to start building web3 apps with ERC-20 smart contracts, get started with thirdweb’s web3 tools & SDKs — they’re free!