Ethereum’s ERC20 standard has become the foundation for most digital tokens in the blockchain ecosystem. Whether you're trading, investing, or building decentralized applications (dApps), understanding ERC20 is essential. This guide breaks down what ERC20 means, its six fundamental functions, and why it matters in today’s crypto landscape.
What Is ERC20?
ERC20 stands for Ethereum Request for Comment 20, a technical standard used for smart contracts on the Ethereum blockchain. It defines a set of rules that all fungible tokens must follow to ensure compatibility across wallets, exchanges, and dApps.
In simple terms, ERC20 is a blueprint for creating tokens on Ethereum. By adhering to this standard, developers can issue new tokens that are instantly compatible with existing infrastructure—no need to rebuild support from scratch.
👉 Discover how ERC20 powers innovation in decentralized finance today.
The Six Core Functions of ERC20 Tokens
To be fully compliant with the ERC20 standard, a token contract must implement six key functions and two events. These ensure seamless interaction between users, wallets, and platforms.
1. totalSupply() – Total Token Supply
This function returns the total number of tokens in circulation. It defines the maximum or current supply of the token, depending on whether new tokens can be minted.
For example:
function totalSupply() public view returns (uint256);This allows wallets and exchanges to display accurate market data like circulating supply and market cap.
2. balanceOf(address) – Check Account Balance
Users need to know how many tokens they hold. The balanceOf function takes an Ethereum address as input and returns the token balance of that account.
function balanceOf(address _owner) public view returns (uint256 balance);This is crucial for transaction validation and user interface displays.
3. transfer(address, uint256) – Send Tokens
This enables direct token transfers from one address to another. When Alice sends 100 tokens to Bob, she calls transfer(BobAddress, 100).
function transfer(address _to, uint256 _value) public returns (bool success);It updates balances and triggers a Transfer event—essential for tracking ownership changes.
4. transferFrom(address, address, uint256) – Allow Third-Party Transfers
Used in decentralized exchanges and staking platforms, transferFrom lets a third party (like a DEX) move tokens on behalf of a user—but only if permission was previously granted.
This function works hand-in-hand with approve().
function transferFrom(address _from, address _to, uint256 _value) public returns (bool success);5. approve(address, uint256) – Grant Spending Permission
Before any service can spend your tokens (e.g., swapping on Uniswap), you must approve it. The approve function sets a spending limit for another address.
function approve(address _spender, uint256 _value) public returns (bool success);This enhances security by preventing unlimited access.
6. allowance(owner, spender) – Check Approved Amount
This function checks how many tokens a spender is still allowed to use from an owner’s balance.
function allowance(address _owner, address _spender) public view returns (uint256 remaining);It helps prevent accidental overspending and improves transparency.
Required Events: Transfer and Approval
In addition to functions, ERC20 requires two events:
Transfer(from, to, value): Emitted when tokens are sent.Approval(owner, spender, value): Emitted when spending rights are granted.
These events allow blockchain explorers and wallets to monitor activity in real time.
Why ERC20 Matters in Blockchain
The power of ERC20 lies in interoperability. Before its creation, every token had a unique structure—wallets and exchanges had to add custom support for each one. With ERC20, any compliant token works out of the box.
Imagine launching a new app currency: instead of convincing MetaMask or Trust Wallet to integrate it manually, your token automatically works because it follows the standard.
This standardization fueled the 2017 ICO boom and remains central to DeFi, NFTs (via bridging), and Web3 ecosystems.
👉 See how leading platforms leverage ERC20 for scalable token solutions.
ERC20 vs Other Standards: A Quick Comparison
While ERC20 dominates, other Ethereum standards serve different purposes:
- ERC721: For non-fungible tokens (NFTs). Each token is unique—like digital art or collectibles.
- ERC1155: A multi-token standard supporting both fungible and non-fungible assets in one contract.
- ERC223 & ERC777: Improved versions aiming to fix issues like accidental token loss when sent to contracts.
However, none have surpassed ERC20 in adoption for fungible tokens.
Common Use Cases of ERC20 Tokens
ERC20 isn't just for speculative coins—it powers real-world utility:
- Stablecoins like USDT-ERC20 and USDC run on this standard.
- Governance tokens (e.g., COMP, UNI) allow voting in DAOs.
- Reward tokens incentivize user engagement on dApps.
- Security tokens represent shares or asset-backed value.
Even meme coins like Shiba Inu (SHIB) are built on ERC20—proving its flexibility and reach.
FAQs About ERC20 Tokens
Q1: What does "ERC20" mean?
ERC20 stands for Ethereum Request for Comment 20. It's a technical standard that defines how fungible tokens operate on the Ethereum blockchain. This ensures all ERC20 tokens behave consistently across wallets, exchanges, and smart contracts.
Q2: Can I send ERC20 tokens to any Ethereum address?
Yes—but only if the receiving wallet supports that specific token. Sending SHIB to an ETH-only wallet may result in loss if the wallet doesn't recognize the token. Always verify token compatibility before transferring.
Q3: Is USDT available on networks other than ERC20?
Yes. USDT exists on multiple blockchains:
- ERC20 (Ethereum): Higher fees but widely supported.
- TRC20 (Tron): Lower fees, faster transactions.
- Others include BEP-20 (Binance Smart Chain), Solana, etc.
Always match the network when depositing or withdrawing.
Q4: What happens if I send an ERC20 token to a contract address?
There's a risk of permanent loss. Smart contracts don't automatically handle incoming token transfers unless designed to do so. That’s why newer standards like ERC223 include fallback mechanisms.
Q5: How do I create my own ERC20 token?
You need:
- A basic understanding of Solidity (Ethereum’s programming language).
- An IDE like Remix or Hardhat.
- ETH for gas fees.
- A verified deployment process.
Many tools offer templates to simplify creation—though auditing is critical for security.
Q6: Are all tokens on Ethereum ERC20?
No. While most fungible tokens are ERC20-compliant, others follow different standards:
- NFTs use ERC721 or ERC1155.
- Some projects use custom logic, though they may lose interoperability benefits.
Final Thoughts: The Enduring Role of ERC20
Since its proposal in 2015 by developer Fabian Vogelsteller and later formalized by Vitalik Buterin, ERC20 has become the backbone of Ethereum’s token economy. Its simplicity, predictability, and wide adoption make it indispensable—even as newer standards emerge.
From stablecoins to governance systems, ERC20 enables trustless value exchange at scale. As blockchain technology evolves, the principles behind ERC20 will continue influencing future standards.
Whether you're a developer launching a new project or an investor managing assets, understanding what ERC20 is and how it works gives you a solid foundation in the world of decentralized finance.