ERC-20
ERC-20 is a set of technical rules for tokens on Ethereum. These rules allow tokens to work in similar ways.
What is an ERC-20 token?
An ERC-20 token is a fungible token that runs on Ethereum. Fungible means that each token of the same type is equal to any other.
The rules are set out in a smart contract. This is a program on the blockchain that can, for example, keep track of how many tokens exist, who owns them, and how they’re sent.
Because ERC-20 tokens follow the same basic rules, crypto wallets, crypto exchanges, and apps on Ethereum can support them more easily. This lets developers create a token without building their own blockchain.
An example of an ERC-20 token
USD Coin (USDC) is an example of an ERC-20 token. Someone can send USDC from a crypto wallet to another person’s wallet address.
The smart contract processes the transfer according to the ERC-20 rules. This allows a compatible wallet to display the balance and a crypto exchange to support the token.
Why are ERC-20 tokens important in crypto?
ERC-20 made it easier to create and use new tokens on Ethereum. That’s why many tokens follow this standard.
Crypto news may report that a project is launching an ERC-20 token or that a token is available on Ethereum. This mainly tells you about the technical standard and its compatibility with the Ethereum ecosystem. It doesn’t automatically mean that a token is safe or will gain value.
Using ERC-20 can also involve risks. Network congestion on Ethereum can increase transaction fees. A poorly built smart contract may also have security issues.
