ERC-20 Tokens

While a blockchain has a single native token, the ERC-20 token standard was developed to allow for the representation of a wide range of assets on EVM-compatible chains.

ERC stands for Ethereum Request for Comment, and 20 is the identifier for the specific proposal that defines the standard.

ERC-20 tokens are fungible, meaning each token is identical to another and can be exchanged on a one-to-one basis. These tokens are created and managed through smart contracts that adhere to the ERC-20 standard, ensuring interoperability between different tokens and decentralized applications (DApps).

ERC-20 Token Architecture

At the core of every ERC-20 token is a simple mapping of addresses to balances, representing the number of tokens an address holds.

abstract contract ERC20 is Context, IERC20, IERC20Metadata, IERC20Errors {
    
  mapping(address account => uint256) private _balances;
  
  //...
}

Addresses holding ERC-20 tokens can belong to either Externally Owned Accounts (EOAs) or smart contracts. Both types of accounts can store and transfer ERC-20 tokens, making ERC-20 tokens versatile in decentralized finance (DeFi) and decentralized applications.

Role of ERC-20 Tokens in Blockchain Ecosystems

ERC-20 tokens play an essential role in enabling the creation of decentralized applications with various functionalities:

• Tokenized Assets: ERC-20 tokens can represent anything from digital currencies to tokenized real-world assets.
• DeFi Protocols: Many DeFi protocols use ERC-20 tokens for lending, staking, and liquidity pools.
• Token Sales: ICOs (Initial Coin Offerings) and other fundraising models rely heavily on ERC-20 tokens.

The ERC-20 Interface

All ERC-20 tokens follow a standard interface to ensure compatibility with decentralized applications (DApps). This allows tokens to be easily transferred, approved for spending, and managed by any DApp that follows the same rules.

interface IERC20 {
    function name() external view returns (string memory);
 
    function symbol() external view returns (string memory);
 
    function decimals() external view returns (uint8);
 
    function totalSupply() external view returns (uint256);
 
    function balanceOf(address _owner) external view returns (uint256 balance);
 
    function transfer(address _to, uint256 _value) external returns (bool success);
 
    function transferFrom(address _from, address _to, uint256 _value) external returns (bool success);
 
    function approve(address _spender, uint256 _value) external returns (bool success);
 
    function allowance(address _owner, address _spender) external view returns (uint256 remaining);
}

You can review the full ERC-20 standard here.

Transferring ERC-20 Tokens

To transfer ERC-20 tokens between accounts, you use the transfer() function, where the sender specifies the recipient’s address and the amount to be transferred.

For more complex interactions, such as allowing a smart contract to transfer tokens on behalf of someone else, the ERC-20 standard includes the approve() and transferFrom() functions.

ERC-20 tokens revolutionized the blockchain space by enabling the tokenization of assets and simplifying the creation of decentralized applications. Their standardization ensures compatibility across platforms and DApps, making them an integral part of the broader crypto ecosystem.