ERC-20 Tokens Explained

What ERC-20 is

ERC-20 is a technical standard for creating tokens on Ethereum. It defines a common set of functions (such as checking a balance or transferring tokens) that a compliant token's smart contract must implement, so that different applications — wallets, exchanges, other smart contracts — can all interact with any ERC-20 token in a predictable, consistent way.

Why a shared standard matters

Without a shared standard, every new token might need custom, one-off integration work from every wallet and exchange that wanted to support it. Because ERC-20 tokens all implement the same core interface, a wallet or exchange that supports the standard generally can support any compliant token with minimal extra work.

What ERC-20 tokens are used for

• Utility tokens that grant access to a specific application or service.
• Governance tokens that grant voting rights in a protocol's decisions.
• Stablecoins pegged to the value of another asset.
• Representations of other assets, such as wrapped versions of another cryptocurrency.

What to remember

• ERC-20 is a standard interface for tokens on Ethereum.
• It lets wallets and exchanges support many different tokens consistently.
• ERC-20 tokens serve many purposes, from utility to governance to stablecoins.
• Standard compliance says nothing about a token's trustworthiness.