What Are ERC-20 Tokens? All About Ethereum’s Most Important Token Standard
ERC-20 is a token standard for fungible tokens on Ethereum. Learn what it is and how cryptocurrencies can be minted with it.
Key Takeaways:
- ERC-20 is a technical standard for building fungible tokens on the Ethereum blockchain, providing a framework for how they should be created, issued, and deployed.
- The purpose of token standards is to facilitate interoperability between smart contracts, ensuring newly minted tokens are compatible with third-party services like exchanges and wallets.
- The introduction of ERC-20 empowered developers to build on Ethereum, creating a network effect and becoming a driving force behind the ICO boom of 2017 that created hundreds of new tokens.
What Does ERC-20 Mean?
In the world of token standards, ERC-20 reigns supreme. Proposed in 2015 by Fabian Vogelsteller, one of the founders of Ethereum, it is a technical standard for building fungible tokens on the Ethereum blockchain. ‘ERC’ stands for ‘Ethereum Request for Comments’ and ‘20’ is the number assigned to this particular proposal, which defines a set of rules for how tokens should be created, issued, and deployed.
Fungible tokens are indistinguishable from one another and can be interchanged at any given time. Many tokens use the ERC-20 standard, which has become a driving force of the entire Ethereum ecosystem, with over a thousand contracts on the network.
What Are Token Standards?
Token standards are a category of smart contract parameters, which lay out application-level guidelines about how a smart contract functions on its underlying blockchain. A token standard more specifically addresses parameters like token supply, transaction approval, and accessibility of the token’s data.
The purpose of token standards is to facilitate interoperability, ensuring that newly minted tokens can be exchanged with others of the same standard and are compatible with third-party services like exchanges and wallets. In other words, ERC-20 is what ensures that users can buy, swap, and HODL the many cryptocurrencies built on this standard. Without this framework, developers would create tokens using unique codebases and toolkits that could not interact with one another or protocols in predictable ways.
To learn more about token standards, including ERC-721 for NFTs, check out our University article.
How Do ERC-20 Tokens Work?
For ERC-20 tokens, interoperability with one another and third-party services, such as the Crypto.com App and MetaMask, is achieved through the implementation of an application programming interface (API). This enables developers to fetch on-chain data about a token and use the data to trigger specific functions within their smart contract.
The API outlines six main features an ERC-20 token must have:
- Data on the total token supply.
- Data on the token balance in an Ethereum wallet.
- Functionality allowing the user to transfer the ownership of a token to another user.
- Functionality allowing smart contracts to transfer tokens on the owner’s behalf.
- Functionality setting a limit on the number of tokens a smart contract can withdraw.
- Functionality granting external addresses permission to spend the token from a certain balance.
Top 10 ERC-20 Tokens to Know
While there are thousands of ERC-20 tokens, several stand out from the rest. Below are some of the most popular today, in no particular order:
Tether (USDT) | USDT is pegged to the US dollar and currently the most popular stablecoin in the market. |
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USD Coin (USDC) | USDC is a fully collateralised US dollar stablecoin powered by Ethereum, jointly created by Circle and Coinbase. |
Polygon (MATIC) | MATIC is typically used to secure Polygon’s Proof of Stake (PoS) network through validators, who receive additional MATIC tokens as a reward for staking their tokens. |
Shiba Inu (SHIB) | SHIB is an experiment in decentralised community building, where the supply of one quadrillion is intentionally abundant. |
Uniswap (UNI) | UNI is the governance token for Uniswap, a protocol for exchanging ERC-20 tokens in an automated liquidity provision manner. |
Cronos (CRO) | CRO is the native token of Cronos, an open-source and energy-efficient public blockchain with high transaction speed and low fees. |
Chainlink (LINK) | LINK powers Chainlink, one of the first networks to allow the integration of off-chain data into smart contracts. |
Dai (DAI) | DAI is a decentralised, collateral-backed stablecoin on the Ethereum blockchain that is soft-pegged to the US dollar. |
Render Token (RNDR) | RNDR serves as the utility token used to pay for animation, motion graphics, and rendering on the Render Network, a provider of decentralised GPU-based rendering solutions. |
Arbitrum (ARB) | ARB is the native ERC-20 governance token for the Arbitrum blockchain, designed to enhance scaling solutions for Ethereum, where holders of ARB tokens can transfer value, vote on governance decisions, and participate in the Arbitrum ecosystem. |
Users can easily track all ERC-20 tokens on the Crypto.com Price page.
How ERC-20 Became the Gold Standard for Crypto Tokens
Before the ERC-20 standard was introduced, there was no common language for developers to use when creating tokens on Ethereum. This meant that they needed to build projects from the ground up, as well as custom blockchain bridges to exchange any token — both of which required technical knowledge.
By lowering the barrier to entry for building on Ethereum, ERC-20 empowered developers and gave them confidence in knowing their project would be interoperable with thousands of tokens and services, creating a network effect.
Additionally, the fungible basis of the ERC-20 token standard is well-suited for cryptocurrency, which was and remains a prominent use case of blockchain technology. ERC-20 tokens can also be customised to include utilities for owners, such as voting rights and rewards mechanisms.
The above factors have led ERC-20 tokens to surge in popularity, paving the way for the initial coin offering (ICO) boom that began in 2017. With billions of dollars raised, a new generation of projects was launched during that time — with many becoming pillars of the cryptocurrency space.
How to Buy ERC-20 Tokens on Crypto.com
In the Crypto.com App, users can conveniently buy ERC-20 tokens and 250-plus other coins using a credit/debit card, Apple Pay, Google Pay, or 20-plus fiat currencies transferred from their bank account. To do so, tap ‘Buy’ from the Home Screen, then select the token to purchase and payment method.
Visit the Help Centre for more information, and download the Crypto.com App here.
Final Words — Will ERC-20 Maintain Its Gold Standard?
The original token standard of Ethereum, ERC-20 has played an integral role in the growth of blockchain projects — not only for the Ethereum network, but the entire crypto ecosystem. Its widespread adoption has opened the gates for developers to build decentralised finance (DeFi) products, games, exchanges, and much more around its standards, expanding the possibilities of decentralised technology.
Since the introduction of ERC-20, other token standards have been developed as alternatives or improvements. The most notable ones include:
- ERC-777: Similar to ERC-20, this token standard defines parameters for fungible tokens, with some differences. Notably, its ‘backwards compatibility’ allows these tokens to connect with older wallets and tap into a wider Ethereum ecosystem.
- ERC-721: In contrast to ERC-20, ERC-721 is the standard for unique, non-fungible tokens (NFTs) created on the Ethereum blockchain. Use cases include non-interchangeable assets like digital artwork, physical property, and access keys.
- ERC-1155: This multi-token standard combines the foundations of ERC-20 and ERC-721, meaning ERC-1155 tokens can be fungible, non-fungible, or both.
For those interested in understanding the token standards of other blockchain ecosystems, this University article has all the information.
Due Diligence and Do Your Own Research
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Although the term ‘stablecoin’ is commonly used, there is no guarantee that the asset will maintain a stable value in relation to the value of the reference asset when traded on secondary markets or that the reserve of assets, if there is one, will be adequate to satisfy all redemptions.
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