Understanding ERC-20 Tokens: A Complete Guide to Building and Deploying on Ethereum

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ERC-20 tokens are the backbone of the Ethereum ecosystem, powering decentralized finance (DeFi), tokenized assets, governance models, and much more. This guide dives deep into what ERC-20 tokens are, their core functions, how to build them using Solidity, and best practices for deployment. Whether you're a developer, investor, or Web3 enthusiast, understanding ERC-20 is essential.

What Are ERC-20 Tokens?

ERC-20 stands for Ethereum Request for Comment 20, a technical standard introduced in 2015 that defines a common set of rules for creating fungible tokens on the Ethereum blockchain. These rules ensure interoperability across wallets, exchanges, and decentralized applications (dApps).

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ERC-20 tokens can represent various assets or utilities such as:

Because they follow a standardized interface, ERC-20 tokens can be easily integrated into existing infrastructure like MetaMask, Uniswap, and other DeFi protocols.

Why ERC-20 Matters

Without standards like ERC-20, every token would have a unique structure, making integration with wallets and exchanges extremely complex. The standardization allows developers to create new tokens quickly while ensuring compatibility across the ecosystem.

Core Components of ERC-20

To be compliant with the ERC-20 standard, a smart contract must implement six mandatory functions and two events. Additionally, optional metadata such as name, symbol, and decimals are commonly included.

Mandatory Functions

These methods form the functional core of any ERC-20 token:

totalSupply()

function totalSupply() public view returns (uint256)

Returns the total number of tokens in circulation.

balanceOf(address account)

function balanceOf(address account) external view returns (uint256)

Retrieves the token balance of a specific Ethereum address.

transfer(address to, uint256 amount)

function transfer(address to, uint256 amount) external returns (bool)

Enables the sender to transfer a specified amount of tokens to another address.

allowance(address owner, address spender)

function allowance(address owner, address spender) external view returns (uint256)

Checks how many tokens one address has authorized another to spend.

approve(address spender, uint256 amount)

function approve(address spender, uint256 amount) external returns (bool)

Allows an owner to grant spending permission to a third-party address (e.g., a DEX).

transferFrom(address from, address to, uint256 amount)

function transferFrom(address from, address to, uint256 amount) external returns (bool)

Used by approved third parties to transfer tokens on behalf of the owner.

Note: The approve and transferFrom functions enable secure interactions with decentralized exchanges without requiring users to transfer full control of their funds.

Required Events

Events provide transparency and allow off-chain applications (like block explorers and wallets) to track activity.

Transfer

event Transfer(address indexed from, address indexed to, uint256 value)

Emitted when tokens are transferred between addresses.

Approval

event Approval(address indexed owner, address indexed spender, uint256 value)

Triggered when an allowance is set or updated.

Optional Metadata

While not required by the standard, most ERC-20 contracts include these public variables:

These help wallets and interfaces display the token correctly.

How to Write an ERC-20 Token Contract

There are two primary approaches: inheriting from OpenZeppelin or writing from scratch.

Option 1: Using OpenZeppelin (Recommended)

OpenZeppelin provides secure, audited smart contract libraries that simplify development.

Here’s a minimal implementation:

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;

import "@openzeppelin/contracts/token/ERC20/ERC20.sol";

contract MyCoin is ERC20 {
    constructor() ERC20("BinSchool Coin", "BC") {
        _mint(msg.sender, 100 * 10**18); // Mint 100 tokens
    }
}

This code:

Using trusted libraries reduces the risk of bugs and security vulnerabilities.

Option 2: Building from Scratch

Writing your own version gives full control but requires careful attention to detail.

Key data structures:

Below is a simplified version of a custom ERC-20 contract:

pragma solidity ^0.8.20;

contract MyCoin {
    string public constant name = "BinSchool Coin";
    string public constant symbol = "BC";
    uint8 public constant decimals = 18;
    uint256 private _totalSupply = 100 * 10**18;

    mapping(address => uint256) private balances;
    mapping(address => mapping(address => uint256)) private allowances;

    event Transfer(address indexed from, address indexed to, uint256 value);
    event Approval(address indexed owner, address indexed spender, uint256 value);

    constructor() {
        balances[msg.sender] = _totalSupply;
    }

    function totalSupply() external view returns (uint256) {
        return _totalSupply;
    }

    function balanceOf(address account) external view returns (uint256) {
        return balances[account];
    }

    function transfer(address recipient, uint256 amount) external returns (bool) {
        require(recipient != address(0), "Transfer to zero address");
        require(balances[msg.sender] >= amount, "Insufficient balance");

        balances[msg.sender] -= amount;
        balances[recipient] += amount;
        emit Transfer(msg.sender, recipient, amount);
        return true;
    }

    function approve(address spender, uint256 amount) external returns (bool) {
        allowances[msg.sender][spender] = amount;
        emit Approval(msg.sender, spender, amount);
        return true;
    }

    function transferFrom(address sender, address recipient, uint256 amount) external returns (bool) {
        require(recipient != address(0), "Transfer to zero address");
        require(balances[sender] >= amount, "Insufficient balance");
        require(allowances[sender][msg.sender] >= amount, "Insufficient allowance");

        balances[sender] -= amount;
        balances[recipient] += amount;
        allowances[sender][msg.sender] -= amount;

        emit Transfer(sender, recipient, amount);
        emit Approval(sender, msg.sender, allowances[sender][msg.sender]);
        return true;
    }
}

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Deploying and Testing Your Token

Once your contract is written:

  1. Compile it in Remix IDE or Hardhat.
  2. Deploy to a testnet like Goerli or Sepolia.
  3. Verify the contract on Etherscan.
  4. Interact via wallet apps like MetaMask by adding the custom token using its contract address.

After deployment:

Frequently Asked Questions (FAQ)

What is an ERC-20 token used for?

ERC-20 tokens serve multiple purposes including utility within dApps, governance voting, fundraising via ICOs/IEOs, asset tokenization, and rewards systems in play-to-earn games.

Can I modify an ERC-20 token after deployment?

No — once deployed, the logic is immutable unless built with upgradeability patterns (e.g., using proxy contracts). Always test thoroughly before deployment.

How do wallets detect my ERC-20 token?

Wallets read the token’s name, symbol, and decimals from its contract. When you input the contract address manually or through a link, the wallet queries this data automatically.

What’s the difference between minting and transferring?

Minting creates new tokens increasing total supply; transferring moves existing tokens between addresses without changing supply.

Is every token on Ethereum ERC-20?

No — other standards exist like ERC-721 (NFTs), ERC-1155 (multi-token standard), and BEP-20 (Binance Smart Chain equivalent).

How do I make my token deflationary?

You can burn tokens by sending them to an irrecoverable address (like 0x00..dead) during transfers or via manual burns to reduce total supply over time.

Final Thoughts

ERC-20 has become the foundation for innovation in Web3. From launching new projects to enabling complex DeFi strategies, understanding how these tokens work empowers both developers and users.

Whether you're building your first token or integrating one into an app, leveraging well-tested tools like OpenZeppelin and following best practices ensures security and usability.

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Core Keywords: ERC-20 token, Solidity smart contract, Ethereum blockchain, OpenZeppelin library, DeFi token standard, blockchain development, token deployment