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ERC-20 Token Meaning

Dec 2, 2022 | Updated May 24, 2023
ERC-20 tokens is the technical standard for fungible digital tokens that run only on the Ethereum blockchain network. They are built on smart contracts that keep track of the tokens created on the Ethereum network.

What are ERC-20 Tokens?

ERC-20 stands for “Ethereum Request for Comments” where the number 20 signifies a unique ID that differentiates it from other ERC uses. ERC tokens are like other cryptocurrencies, such as “Bitcoin or Dogecoin,” but they are solely created for the Ethereum network. Created by Fabian Vogelstellar in 2015, these tokens are designed to pay for different functions performed on the Ethereum network. 

A common use case for ERC-20 tokens is exchanging digital assets through smart contracts. 

Characteristics of ERC-20 tokens include:

  • Fungibility – ERC-20 tokens are fungible, which means that they are interchangeable, i.e., 1 unit of that token can be exchanged with another unit of that same token.
  • Transferability – These tokens can be easily transferred from one wallet to another, similar to other digital currencies.
  • Identified total supply – Most tokens have a fixed supply issued on the network.
  • Gas fees – To complete transactions with ERC-20 tokens, users need to pay gas fees in ETH.
  • Liquidity – As more projects interact with each other, ERC-20 leverages liquidity within the Ethereum ecosystem.

What is the Role of ERC-20 in a Blockchain?

ERC-20 defines a set of technical rules, known as a “standard,” that smart contracts must follow within the Ethereum blockchain network, including how they can be transferred, how transactions are approved, as well as the rules governing token creation and total supply. This standard allows developers, businesses, and other community members to create and deploy various dApps within the Ethereum network and accurately predict how those projects will integrate with the larger ecosystem.

The tokens are also used to tokenize voting rights and offer secured and speedy transactions within the Ethereum network.

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