ERC-20 tokens are digital assets built on the Ethereum blockchain that follow a specific set of programming rules, making them interchangeable and compatible with thousands of decentralized applications. First proposed by Fabian Vogelsteller in 2015, the ERC-20 standard implements a standardized API for tokens within smart contracts.
How ERC-20 Tokens Work
ERC-20 tokens are digital assets built on the Ethereum blockchain that follow a specific set of programming rules, making them interchangeable and compatible with thousands of decentralized applications. First proposed by Fabian Vogelsteller in November 2015, the ERC-20 standard implements an API for tokens within Smart Contracts.
How ERC-20 Tokens Work
ERC-20 is the technical standard for fungible tokens created using the Ethereum blockchain. Unlike unique NFTs, these tokens are fungible—meaning each token is identical in type and value to every other token of the same kind.
The standard requires six mandatory functions that every compliant token must implement:
TotalSupply: Shows the total number of tokens in circulation
BalanceOf: Checks token balance for any address
Transfer: Moves tokens between addresses
TransferFrom: Enables third-party transfers with approval
Approve: Grants spending permission to another address
Allowance: Shows approved spending limits
ERC-20 vs Other Token Standards
While ERC-20 handles fungible tokens, ERC-721 introduces a standard for NFTs, in other words, this type of Token is unique and can have a different value than another Token from the same Smart Contract. ERC-1155 facilitates the creation of fungible, semi-fungible, and non-fungible tokens, whereas ERC-721 enables the creation of only the latter.
Gas Fees and Transaction Costs
Transferring ERC-20 tokens usually costs more than a simple ETH transfer. It can require about 45,000 to 65,000 gas units, depending on the contract's complexity. These fees fluctuate based on network congestion and can significantly impact user experience.
Popular ERC-20 Token Examples
Major cryptocurrencies like ETH, LINK, and AVAX, and stablecoins like USDC and USDT use the ERC-20 standard, making them compatible with thousands of onchain applications.