What is ERC-20?
Crypto Glossary Definition
A standard format for tokens to follow in order to work with the Ethereum ecosystem. Refers to the 20th 'Ethereum Request for Comment' proposal.
Why ERC-20 Matters
ERC-20 is the technical standard most tokens on Ethereum follow, defining a common set of functions (like transfer and balance checks) so that wallets, exchanges, and DApps can all interact with any ERC-20 token the same way. It's the reason a single wallet like MetaMask can support thousands of different tokens without custom code for each one.
ERC-20 in Practice
A small team building a rewards program for their gaming platform decides to issue their own token rather than build a payment system from scratch. By writing their smart contract to the ERC-20 standard, implementing the required functions for transferring tokens, checking balances, and approving spending, they instantly gain compatibility with the existing Ethereum ecosystem. Users can hold the new token in MetaMask without installing anything special, list it on a decentralized exchange for trading, and later even see it supported by centralized exchanges, all without the team having to negotiate custom integrations with each platform individually. Suppose a player earns tokens for completing in-game achievements; those tokens behave identically to any other ERC-20 token like a popular stablecoin or governance token, meaning the wallet and exchange infrastructure already built for millions of other tokens works automatically for this new one too. The tradeoff the team quickly learns is that being a standard doesn't guarantee usefulness or value; thousands of ERC-20 tokens exist, and most see little real trading activity or utility beyond their original project. Still, the standard removes an enormous amount of engineering overhead that would otherwise be required just to make a token function within existing wallets and exchanges.
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