Basics

What is the ERC-20 Standard?

Unity Network

Unity Network

11 minutes

What is the ERC-20 Standard?

Basics

What it is

The ERC-20 standard is a set of rules that allow a wide variety of tokens to be compatible with the Ethereum network. These tokens are called ERC-20 tokens.

An ERC-20 token is simply a representation of something on the Ethereum network. It could be scientific data, points in a game, cryptocurrency, or even fiat currency. The ERC-20 standard uses computer code to give these tokens common features so that they can be traded and used on the network. 

For two things to be exchangeable, they must have a common source of value, whether it be a commodity, government, or company. So any token used on the Ethereum network shares value because of the ERC-20 standard. 

Ethereum is a powerful platform for cryptocurrencies and other applications because of the ERC-20 standard. Without it, Ethereum would be incapable of hosting such a diverse range of currencies and apps. 

How it Works

ERC-20 tokens all share basic properties that make them usable together. Any ERC-20 token must be:

  • finite in supply
  • Able to show a balance in the owner’s account
  • Transferable from one account to another
  • Returnable from a spender to an owner
  • Able to allow a spender to withdraw tokens from account

This means that ERC-20 tokens are standardized. Any tokens that share these features on the Ethereum network can be swapped, traded, and used together in different ways. It gives Ethereum programmers the ability to create applications where you could swap those points, data, and currency around with each other. 

This is possible because of the ERC-20 standard. 

However, ERC-20 tokens must be fungible, which means that individual tokens of one kind have to be the same as each other. For example, fiat currency is fungible. There is no difference between two individual euros. If they represent the same monetary value, then they are completely equal. 
Not all valuables are fungible. Collectibles, real estate, and artistic creations are all non-fungible because they represent completely unique value. It would be a bad idea to trade your home for any other home because there’s a chance that your new home would be much worse than the one you traded it for.

The ERC-20 standard does not allow people to trade fungible valuables. However, other Ethereum standards like ERC-721 allow people to trade non-fungible tokens which are popularly known as NFTs.

How You Can Benefit

The ERC-20 standard is arguably Ethereum’s greatest claim to fame. Without it, Ethereum would be incapable of offering such a wide range of usability.

You can use Ethereum’s platform to trade multiple different currencies and enjoy a wide variety of apps. You don’t have to constantly swap between products and services to have a diverse and powerful blockchain experience. ERC-20 does the same thing as iOS for your online convenience. Everything is in one place and doesn’t require a lot of back-and-forthing.  

ERC-20 also protects you. Established standards make it more difficult to create unsafe applications, which leads to more security and peace of mind. 

Conclusion

The ERC-20 standard is the engine behind Ethereum’s powerful platform.

By providing rules that every application must follow, ERC-20 supports security, creativity, and interactivity. Nothing lives alone on the Ethereum network. 
It gives developers the tools to create almost anything, which gives you the opportunity to do almost everything all in one place.

Unity Network

Unity Network is an educational platform and a next-generation fintech company that leverages blockchain technology to build fast, secure, and easy-to-use decentralised finance (DeFi) applications.

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