ERC-20 definition: A common standard for fungible tokens on the Ethereum blockchain, allowing for wider adoption and use of tokens across dApps and more.

In the world of cryptocurrencies and blockchain technology, "ERC-20" stands as a pivotal standard that has revolutionized the creation and interoperability of tokens on the Ethereum blockchain. Understanding ERC-20 is fundamental for comprehending the vast ecosystem of tokens built atop the Ethereum platform.

ERC-20 is an acronym for "Ethereum Request for Comment 20," which refers to a widely adopted standard for creating fungible tokens on the Ethereum blockchain. These tokens adhere to a set of rules and specifications that enable seamless interaction and compatibility across different decentralized applications (dApps) and exchanges within the Ethereum ecosystem.

The ERC-20 standard outlines a common interface that tokens must follow, including methods for transferring tokens, querying token balances, and tracking token ownership. This standardized structure streamlines the integration of new tokens into various Ethereum-based applications and platforms.

ERC-20 tokens are interchangeable on a one-to-one basis, meaning each token of the same type holds an identical value and is indistinguishable from another token of the same type. The ERC-20 standard enables tokens to be seamlessly integrated with a wide range of Ethereum-based projects, such as wallets, exchanges, and dApps.

Due to its utility and popularity, the majority of tokens issued during initial coin offerings (ICOs) and token sales are based on the ERC-20 standard.

Developers create ERC-20 tokens by writing smart contracts that adhere to the specifications outlined in the ERC-20 standard. These smart contracts define the token's behavior, including how it's transferred, how transactions are verified, and how token balances are managed.

While ERC-20 tokens offer immense benefits, they also come with challenges, such as potential vulnerabilities in smart contracts and the need for proper security audits to prevent token loss.

By adhering to standardized specifications, ERC-20 tokens empower developers to create tokens with confidence, promoting compatibility and interoperability within the Ethereum ecosystem.

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Michelle Legge
By Michelle LeggeHead of Crypto Tax Education
Updated Nov 9, 2023
This article has been fact checked and reviewed as per our editorial policy.