The ERC-20 Ethereum token standard is a blueprint for creating fungible tokens that are compatible with the broader Ethereum network. Ethereum, or ether, is a cryptocurrency that allows for the creation of a variety of applications, including tokens, that don’t require intermediary services to operate, unlike most traditional applications.
The ERC-20 standard has seeped into almost every corner of the crypto ecosystem. A large number of popular tokens, such as the stablecoin tether and leading oracle service Chainlink, are actually ERC-20 tokens under the hood.
ERC-20 tokens are digital assets that can be created by anyone but are mostly made by organizations and tech-focused companies. Each token has its own specific utility, such as granting users the right to vote on decisions impacting the future of a project, or rewarding customers for performing certain tasks. ERC-20 tokens are typically sold via a variety of different offerings as a way to raise early-stage capital for the underlying project. In the past, however, critics have argued that crypto tokens have drawn too much hype, becoming a vehicle for sour investments or straight-up scams. Many of the projects that raised money in the initial coin offering boom of 2017 reportedly failed to provide any returns for their investors.
ERC-20 standardizes the core functionality of each token, meaning that all tokens created using this framework are interoperable with each other as well as all ERC-20 compatible services like MyEtherWallet and MetaMask.
To understand how this is useful, here are some of the problems token creators encounter when they build projects from scratch:
At a high level:
Every ERC-20 has several required features for developers to implement. The main elements include:
More granular details can be found at Ethhub.
Despite its many benefits, the ERC-20 standard is far from perfect. “Critical problems” with the standard have been used to steal at least US$3 million, and during periods of high Ethereum congestion transactions can take long periods of time to process.
Developers need to code around this and other issues with ERC-20. Developers have also long been experimenting with alternative standards such as ERC223 and ERC777 that might eventually replace ERC-20. However, ERC-20 is by far the most popular standard for now.
As of December 2020, there are 829 projects based on the ERC-20 token standard and over 350,000 token contracts, according to a dynamic list from Ethereum data provider, Etherscan.
There are a surprising number of top crypto projects that were built using the ERC-20 framework, including: