ERC20 Tokens: A Beginner’s Guide

ERC20 token is a term that often comes up when discussing Ethereum smart contracts and Dapps. Considering the frequency in which these tokens are discussed, it’s important to get to know these a little better – which we’ll be going over in this article.

Key takeaways:

• ERC-20 Tokens are the standard issued tokens for any cryptocurrency and/or token that uses the Ethereum blockchain.
• These tokens were created as a way to facilitate interoperability and allow interchangebility with other tokens and smart contracts using the same ERC standard.
• ERC-20 is currently used by many popular cryptocurrency tokens including Tether (USDT), USD Coin (USDC), Shiba Inu (SHIB), and more.

What are ERC20 tokens?

ERC20 is an acronym that stands for Ethereum Request for Comment, number 20.

ERC20 represents a standard – a set of guiding rules – that was created to enable tokens and smart contracts on the Ethereum blockchain to interact with each other.

This standard was necessary as Ethereum’s popularity rose rapidly in 2015. As more and more tokens were being created on Ethereum, there needed to be a standardised set of rules in order to faciliate the interaction between the tokens, so that they can be easily created, used, and exchanged on the blockchain.

Simply put:

• ERC20 is a standard for all crypto tokens created and used on the Ethereum blockchain.
• Any crypto created on Ethereum is classified as an ERC20 token. This includes Tether (USDT), Aave (AAVE), Uniswap (UNI), and many more.
• All ERC20 tokens are fungible. Meaning the fundamental guideline for each individual token is the same as any other ERC20 tokens. This is what facilitates the interaction between the tokens.

Without this ERC20 standard, users would need to constantly convert tokens back and forth between the many applications and smart contracts being developed on Ethereum.

It’s hard to put into words the sheer impact that ERC 20 tokens have had on the crypto world.

They are single-handedly responsible for several billion dollars within the industry, and they played a big role in making cryptocurrencies more mainstream.

How ERC20 started

The ERC20 standard was first proposed by German programmer and developer Fabian Vogelsteller in 2015 as a way to address the issue of scalability on the network as Ethereum continued to rapidly grow.

The proposal was submitted via the Github page for the project, and was designated the number 20 because his comment was the twentieth on the page.

It was later approved and implemented two years later in 2017. Upon its approval, all smart contracts and tokens on the Ethereum blockchain must conform with the new ERC20 standard if the developers wanted them have the function to interact with other tokens on the network.

Related: What is Ethereum (ETH)?

What is GAS?

The Ethereum network has a fee (called “gas”) for every transaction made on the network.

These fees are only charged if you are sending your cryptocurrency to a new address. If you are simply holding your cryptocurrency there is no fee.

If you want to move your ERC20 token from one address to another, you will need to have excess Ethereum at your address to cover the “gas” for the transaction. The price of gas varies but is a very small amount, e.g. 0.0005 ETH.

How do I move ERC20 tokens out of my Ethereum wallet?

If you are moving your ERC20 tokens to another wallet address or to an exchange, you may be required to pay a gas fee or just gas for short. Gas is what users pay to Ethereum miners to validate and process transactions. 

All Ethereum wallets work essentially the same. You need to input a valid address, which will always start with “0x…”. You cannot send ERC20 tokens over to a wallet address that does not belong to the Ethereum network. 

However, you can swap your ERC20 tokens for a “wrapped” version of that token, which has a 1:1 ratio in price and value.

For example, if you want to send some ether to a Tron wallet (which uses the TRC-10 network), you can go to an exchange, such as Uniswap, to exchange ETH with WETH (wrapped Ethereum) on the Tron network. 

Looking to invest in ether? Click here to check the latest rates for ETH.

The future of Ethereum

The Ethereum blockchain is in the works of upgrading its network dubbed Ethereum 2.0 which features a new proof-of-stake (PoS) protocol to improve transaction speeds, lower gas fees, increased efficiencies, and much more.

This update takes the form in a series of updates that serves as “checkpoints” as the network prepares its developers before the transition.

As of this writing the Berlin and London updates have already been executed, with the Shanghai update to follow suit.

Further reading: Explore our learning Hub for all things crypto.