ERC-20 Tokens Explained: A Guide to the Ethereum Standard

Alessandro G
Alessandro G
  • Updated

What Are ERC-20 Tokens?

ERC-20 is a widely-used technical standard for creating tokens on the Ethereum blockchain. Think of it as a rulebook that ensures all tokens work uniformly within the Ethereum ecosystem. This standard provides a framework for developing tokens with predictable behavior, enabling compatibility with wallets, exchanges, and decentralized applications.

Key Features of ERC-20 Tokens

ERC-20 defines six essential functions that govern token behavior, ensuring consistency across all compatible tokens. These functions are part of the token’s smart contract and ensure compatibility across the ecosystem. Here's a breakdown:

1. totalSupply()

Purpose: Returns the total supply of tokens that exist in circulation.
Example: If the token creator issues 1,000,000 tokens, this function will always return that number (minus any tokens that have been burned, if applicable).

2. balanceOf(address owner)

Purpose: Checks the token balance of a specific Ethereum address.
Example: If a user holds 500 tokens in their wallet, this function will return 500 when their address is queried.

3. transfer(address to, uint256 value)

Purpose: Enables the transfer of tokens directly from the sender to another address.
Example: You send 100 tokens to a friend; this function processes the transfer.

4. transferFrom(address from, address to, uint256 value)

Purpose: Allows a third party (e.g., a smart contract) to transfer tokens on behalf of another address, provided prior approval was given.
Example: A decentralized exchange could use this function to execute trades between users.

5. approve(address spender, uint256 value)

Purpose: Authorizes another address (a spender) to use a specified number of the owner’s tokens.
Example: You allow a DeFi app to spend up to 1,000 of your tokens for staking or trading.

6. allowance(address owner, address spender)

Purpose: Checks how many tokens the spender is still allowed to use on behalf of the owner.
Example: If you approved a DeFi app to use 1,000 tokens and it has spent 400, this function will return 600.

This uniformity allows tokens to be easily transferred, traded, and stored in Ethereum-compatible wallets, such as Phantom or MetaMask.

Benefits of ERC-20 Tokens

  1. Streamlined Development: Developers can build new tokens without reinventing the wheel for each project.
  2. Interoperability: ERC-20 tokens work seamlessly across various platforms, apps, and wallets.
  3. Ecosystem Support: Nearly all Ethereum-based wallets and services natively support ERC-20 tokens.

SwissBorg's BORG token follows the ERC-20 standard, providing security, stability, and wide compatibility.

Why Does It Matter?

Imagine you’re building a digital token. ERC-20 ensures that your token can interact flawlessly with the Ethereum ecosystem, saving time and reducing complexity for developers. It also enhances user confidence, knowing the token follows a trusted and secure standard.

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