An ERC-20 token is a type of fungible digital asset or cryptocurrency that is built and operates on the Ethereum blockchain platform. The term “ERC-20” stands for “Ethereum Request for Comment 20,” which is the Ethereum Improvement Proposal (EIP) that introduced this token standard. ERC-20 tokens are a key part of the Ethereum ecosystem and have become one of the most widely used token standards in the blockchain industry.
Here are the key characteristics and features of ERC-20 tokens:
Fungibility: ERC-20 tokens are fungible, which means that each token is identical and interchangeable with every other token of the same type. For example, one ERC-20 token representing a particular cryptocurrency is the same as any other token of the same type and value.
Compatibility: ERC-20 tokens are designed to be compatible with various applications, wallets, and exchanges that support the standard. This compatibility ensures that these tokens can be easily traded and integrated into different platforms.
Transferability: ERC-20 tokens can be transferred between Ethereum addresses, just like Ether (ETH), the native cryptocurrency of the Ethereum network. They can be sent from one Ethereum wallet to another using Ethereum’s smart contract functionality.
Smart Contracts: ERC-20 tokens are created and managed using Ethereum smart contracts, which are self-executing contracts with predefined rules and conditions. These smart contracts define the behavior of the token, including functions like transferring tokens, checking balances, and approving token transfers.
Decimals: ERC-20 tokens can have a specified number of decimal places, allowing for precision in representing fractional amounts of the token. For example, a token with 18 decimal places can represent very small fractions of the token.
Total Supply: Each ERC-20 token contract specifies its total supply, which determines the maximum number of tokens that can ever exist. This supply is usually fixed but can also be minted or burned based on the token’s design.
Standard Functions: ERC-20 tokens follow a set of standard functions defined in the ERC-20 standard, including functions for transferring tokens, checking balances, and approving token transfers. These functions make it easy for developers to work with ERC-20 tokens.
Token Metadata: Token creators can include additional information about the token, such as its name, symbol, and a link to its website or documentation.
ERC-20 tokens have a wide range of use cases, including representing cryptocurrencies, utility tokens, security tokens, and even collectible tokens. They have been used for initial coin offerings (ICOs), creating decentralized applications (dApps), and enabling various blockchain-based financial services and products.
It’s important to note that while ERC-20 tokens have become a de facto standard, Ethereum also supports other token standards, such as ERC-721 (non-fungible tokens or NFTs) and ERC-1155 (a multi-token standard), to address different use cases and requirements within the ecosystem.