ERC-20 Tokens: Meaning, Tokens List & Buying Guide

In the wild world of cryptocurrencies, it can be difficult to establish rules and impose regulations. After all, crypto was created as an alternative to the traditional system that revolves around central governing authorities. Still, if this digital ecosystem is to prosper, there has to be some order, which is where the ERC-20 standard comes into play.

As the Ethereum platform grew to become one of the biggest and most used blockchains in the world, so did the need for some sort of standardization. Nowadays, the Ethereum ecosystem fosters tens of thousands of different cryptocurrencies with different properties and use cases.

So, how do many of these tokens seamlessly interact with each other, creating a rather smooth experience in such a massive environment? The answer is in the ERC-20 standard, so keep reading to find out why!

What Is ERC-20?

The meaning of ERC-20 is Ethereum Request for Comment, number 20, which represents one of the Ethereum Improvement Proposals (EIPs), specifically a Standard Track: ERC proposal.

It was created by one of the lead developers of Ethereum, Fabian Vogelsteller, in 2015. The purpose of his proposal was to define a standardized set of rules that every token created on the network needs to adhere to.

The goal of the ERC-20 token standard is to create an ecosystem of interoperable tokens and applications. These tokens are fungible, which means they are interchangeable. You can compare them to fiat currency. For instance, every one-dollar bill is fungible; the banknotes are exchangeable, and they all have the same value.

The ERC-20 standard sped up and simplified the process of creating new tokens on the Ethereum blockchain. There are two major reasons for that, which are:

1. The standard gives developers a blueprint to follow, removing the need to start creating tokens from scratch.
2. The guidelines ensure the newly created cryptocurrency will be compatible with all the other ERC-20 network tokens, as well as wallets, decentralized exchanges, smart contracts, and more.

Ultimately, the implementation of the ERC-20 standard has proven to be a pivotal point in the development of the Ethereum ecosystem. It streamlined the creation process for new tokens while facilitating a close-knit and user-friendly environment.

History of ERC-20

The history of the ERC-20 standard is deeply interlinked with the history of Ethereum itself. After seeing the success and potential of the Bitcoin network, Vitalik Buterin decided to create a platform that allowed for more than just value exchange. That’s why he launched a programmable blockchain called Ethereum in 2015.

However, the programmability of the network combined with a lack of uniformity led to compatibility issues. Every new token created was different.

This problem was recognized by an Ethereum developer, Fabian Vogelsteller, so he proposed the Ethereum Request for Comment 20, or ERC-20, in late 2015. His reasoning was that every new token should feature a basic set of functions that would make it compatible with the rest of the network.

The ERC-20 standard’s impact on the ecosystem's consistency and interoperability resulted in fast adoption by the community. Moreover, the relatively humble requirements set by the proposal quickly turned it into a de facto standard for token creation.

All this is not to say that the ERC-20 standard is without limitations. The community recognized some of its drawbacks, which resulted in other standards, such as the ERC-721 NFT standard and the ERC-1155 multi token standard, being implemented.

Regardless, ERC-20 stands as the foundational pillar in the Ethereum landscape.

How Do ERC-20 Tokens Work?

ERC-20 tokens exist on the Turing-complete Ethereum Virtual Machine (EVM). The EVM is built with smart contract functionality, which gives these tokens properties and behaviors.

The ERC-20 standard defines six mandatory and three optional functions that each token must feature.

Mandatory functions are:

1. totalSupply: The purpose of this function is to give details regarding the token’s total supply.
2. balanceOf: This one provides information on the number of tokens held by a given address.
3. transfer: This function sends a selected number of tokens to a designated ERC-20 wallet address.
4. transferFrom: This is a delegated transfer function that allows a third party (e.g., a smart contract) to transfer tokens.
5. approve: This function approves a third party (another address or smart contract) to spend or transfer tokens.
6. allowance: This one returns the number of tokens approved for transfer by another address or smart contract.

Optional functions are:

1. name: Returns the name of the token (e.g., “USD Coin”)
2. symbol: Returns the token’s symbol (e.g., “USDC”)
3. decimals: Regulates how many decimals a token can have, determining how it can be subdivided

Lastly, developers caninclude additional features and functionalities beyond the mandatory ones. That allows them to further customize their tokens while maintaining compatibility with a wide range of ERC-20 wallets, exchanges, and various dApps.

Top 10 ERC-20 Tokens List

There are thousands of ERC-20 tokens, and developers keep creating more regularly. Still, most of them likely aren’t of importance to the average investor or enthusiast. That’s why we created a list of the top 10 most prominent tokens.

#1. Wrapped Ether (WETH)

Wrapped Ether represents a tokenized version of ETH made to conform to the ERC-20 standards.

While ETH is a native coin of the Ethereum blockchain, it’s not an ERC-20 token itself. On the other hand, its wrapped version has increased interoperability and can be used for staking, liquid farming, lending, and much more.

#2. Tether USD (USDT)

A company called Tether Limited created Tether USD, which aims to serve as a cryptocurrency equivalent of the US dollar. In essence, this stablecoin represents a digital dollar, and it has a 1:1 peg to it. The company claims that every USDT is backed by fiat USD, which they hold in their reserves.

#3. Binance Coin (BNB)

Binance Coin is one of the world’s largest utility tokens by market capitalization. It was created by the world’s biggest centralized exchange, Binance, following the ERC-20 token standard. The main purpose of this coin is to pay various fees while using the exchange, but its increase in value has turned BNB into a potentially lucrative investment.

#4. USD Coin (USDC)

USD Coin is a fully collateralized stablecoin issued by a company called Circle. Like USDT, USDC is also pegged to the US dollar, which means the price of this ERC-20 token should remain at $1 at all times. Compared to USDT, USDC has a lower market capitalization but is considered safer by many users as its company conducts business more transparently.

#5. Tron (TRX)

The TRON network aims to be a faster and more scalable version of the Ethereum network. It’s built to be compatible with the EVM, which means developers don’t have to modify their code before deploying Ethereum-based applications on TRON. Its native token, TRX, is mainly used to facilitate the storage of data and sharing between users.

#6. Theta Token (THETA)

The Theta network is built to decentralize video streaming. Instead of relying on centralized video hosting platforms, Theta network participants can share their resources (e.g., internet bandwidth and computing power) to watch and distribute video content while earning THETA tokens as rewards.

#7. Matic Token (MATIC)

MATIC is the native token on the Polygon network. Polygon aims to solve the scalability issues of Ethereum. The main way of achieving that is with Optimistic rollups, which allow for faster and more efficient transactions. Another purpose of Polygon is to connect different chains into a multi-chain system, with the MATIC token used for governance and security.

#8. Wrapped BTC (WBTC)

Wrapped BTC represents a tokenized version of Bitcoin made to conform to the ERC-20 standards. This cryptocurrency was created to bring the immense value of Bitcoin to the programmable Ethereum network. That way, holders can use their BTC for activities such as staking and lending, which are impossible on its native blockchain.

#9. Shiba Inu (SHIB)

Shiba Inu was launched in August 2020 as a meme coin, but it grew to become a decentralized ecosystem. Even though the token didn’t offer much utility, the community behind it drove SHIB to become one of the top 10 cryptocurrencies by market cap at one point.

The team behind SHIB created a decentralized exchange, Shibaswap, where users can trade and stake their tokens.

#10. Chainlink Token (LINK)

Chainlink aims to connect the real world with blockchain through Decentralized Oracle Networks (DONs). Essentially, DONs can use various real-world data (e.g., weather reports or article prices) to create hybrid smart contracts.

That allows them to be stored on the blockchain and thus protected from tampering. LINK tokens are used to store and retrieve data.

The Importance of ERC-20 Token Standard

The ERC-20 token standard is of utmost importance to the broader Ethereum ecosystem. Its lenient requirements, combined with plenty of upsides, resulted in it becoming the gold standard when it comes to token creation on the Ethereum blockchain.

Here are several key reasons behind it:

• Interoperability. Before Fabian Vogelsteller created the ERC-20 EIP, every new token created on the Ethereum blockchain featured unique functionalities and followed different rules. The implementation of the token standard led to improved compatibility, seamless interaction between tokens and applications, and a cohesive system.
• Streamlined token creation. ERC-20 standard sped up and simplified the creation process by giving developers a clear set of rules and guidelines to follow. Developers can now create and deploy new cryptocurrencies faster, knowing they will immediately be usable on the Ethereum network.
• Facilitated growth. This token standard plays a crucial role in initial coin offerings (ICOs). That allowed crowdfunding companies to launch their products or services quickly and with less effort than before its implementation, which helped with rapid network expansion.
• Further innovation. The ERC-20 token represents a foundation that paved the way for many other standards. ERC-721 is a notable example that introduced the concept of NFTs, further increasing the Ethereum blockchain’s possibilities.

How to Buy ERC-20 Tokens

There are many ways to buy ERC-20 tokens, which vary depending on the platform that you’re using and the cryptocurrency that you’re after. Here are the most common methods of buying them:

• On a centralized exchange (CEX). For this method, you’ll need an account with an exchange like Binance or KuCoin. After performing the KYC verification process, you’ll be able to use fiat to purchase the desired cryptocurrency.
• On a decentralized exchange (DEX). You’ll need a funded wallet connected to a decentralized exchange like Uniswap or Sushiswap to buy crypto. Keep in mind that there will likely be gas fees in ETH to buy crypto on a DEX, so you should have some of it in your wallet.
• Directly through a wallet. Many software wallets have built-in features that allow you to buy ERC-20 tokens with fiat, though there will probably be some fees included.
• Over the counter. You can purchase ERC-20 crypto from another entity in person by providing them with your address.

The Future of ERC-20 Tokens

The ERC-20 token standard will likely remain relevant in the future. Its simplicity and widespread adoption made it a definitive model for the majority of tokens on the Ethereum blockchain.

As the network continues to grow, we can expect to see ERC-20 tokens gain more utility. For instance, there’s already integration with the world of decentralized finance. But as DeFi continues to expand, we might see more uses for these cryptocurrencies, particularly when it comes to staking, lending, and yield farming.

On the other hand, ERC-20 might encounter competition with other standards that are gaining popularity. ERC-721 (for non-fungible tokens) and ERC-1155 (which allows for fungible, semi-fungible, and non-fungible tokens to exist in one contract) in particular might overshadow ERC-20 in certain areas.

Finally, it’s important to keep an eye out for regulatory changes. The way governing authorities approach ERC-20 tokens can have an impact on their future.

Key Takeaways

As you can see, ERC-20 brings a tad of consistency into the chaotic realm of cryptocurrencies. Its implementation is considered a pivotal moment in the history of the Ethereum blockchain, and its effects are likely to continue to be recognized long into the future.

Now that we’ve explored all the nuances of the ERC-20 token standard, you can tell that it’s more than a technical document. It represents a foundational pillar on which the world of decentralized finance and the digital economy are being built.

So, whether you’re an eager investor or a curious technology enthusiast, you can greatly benefit from all the knowledge and insights that our story on ERC-20 offers!

ERC-20 Token FAQ

• What’s the difference between ETH and ERC-20?

  The difference between ETH and ERC-20 is that ETH is the native cryptocurrency coin on the Ethereum blockchain, while ERC-20 is a token standard that describes rules and guidelines that newly created tokens should follow. ETH itself is not an ERC-20 token, but it’s used for gas fees when transferring these tokens on the network.

• Is MetaMask good for storing ERC-20?

  MetaMask is one of the best software wallets for storing ERC-20 tokens. It’s specifically designed for the Ethereum blockchain and is thus innately compatible with all the tokens created using this standard. You can get MetaMask as a browser extension or a smartphone app.

• How do I send ERC-20 to MetaMask?

  To send ERC-20 tokens to MetaMask, you need to copy the public address provided by the wallet and paste it into the recipient field. Also, make sure that you’re using the correct network (MATIC, for instance, has both Polygon-native and ERC-20 versions). Sending incompatible tokens to the wrong network can result in a loss of funds!

• Are ERC-20 tokens a good investment?

  ERC-20 tokens can be a good investment, but it’s crucial to be aware of the risks. While this standard increased the stability of the network, the cryptocurrency market still remains highly volatile. ERC-20 tokens offer plenty of potential for high returns, but they can drop in price just as fast.