ERC-20: a standard that transformed the Ethereum ecosystem

When Ethereum was just beginning to develop as an open platform for decentralized applications, developers faced a serious problem: each token creator did it their own way, without unified rules. ERC-20 emerged as a solution to this problem—a single technical standard that allowed all tokens on the network to speak the same language. This standard not only simplified development but also opened the door for innovations we see in the blockchain industry today.

How ERC-20 Simplifies Token Development and Deployment

Technically, ERC-20 is a set of rules and interfaces that every token on Ethereum must follow. But why is this so important? Imagine a situation: a developer creates a token arbitrarily, and no wallet recognizes it, no exchange can work with it. The ERC-20 standard solves this puzzle by defining clear functions that must be implemented.

When a token complies with this standard, it automatically becomes compatible with the entire Ethereum ecosystem. Users can send and receive these tokens through any compatible wallet—MetaMask, MyEtherWallet, and dozens of others. Developers no longer need to reinvent the wheel; they can focus on the unique functionality of their project rather than on basic token operations.

How It Works: Smart Contracts and Automation

The foundation of ERC-20 is smart contracts that run on the Ethereum Virtual Machine (EVM). Think of a smart contract as a vending machine: you insert a condition (money), and the machine performs a pre-programmed action (dispenses the product). Similarly, ERC-20 tokens operate.

When the conditions encoded in the smart contract are met, tokens are created and issued automatically. All tokens that conform to the standard are interchangeable—each BTC has the same value as each UNI or USDT. This interchangeability forms the basis for trading and exchange.

Beyond simple transfer, ERC-20 tokens give holders governance rights in some projects. For example, MKR holders can vote on MakerDAO development issues. Some tokens can also be locked during staking to support network operation, allowing holders to earn rewards in the form of additional tokens.

From Fabian Vogelsteller’s Idea to Industry Standard

The story of ERC-20 begins with a simple proposal. In 2015, developer Fabian Vogelsteller published the idea on the Ethereum GitHub page, labeling it as an Ethereum Request for Comment (ERC). Since it was the 20th comment on the page, the proposal was numbered 20 and became known as ERC-20.

The Ethereum community received the idea enthusiastically. It was refined and implemented as an official Ethereum Improvement Proposal (EIP-20). Since the standard’s adoption, all new tokens on the network had to meet these criteria. This decision was a turning point: ERC-20 became the foundation for explosive growth in DeFi, ICO markets, and the entire token economy.

Advantages and Practical Applications

In theory, ERC-20 has significant advantages. First, compatibility. Tokens can freely interact with decentralized exchanges (DEXs) and centralized platforms that support the standard. This means high liquidity—tokens are easy to buy and sell.

Second, security. Since ERC-20 tokens operate on the Ethereum blockchain, they inherit its properties: decentralization, immutability of records, and full transparency. All transactions are recorded in a public ledger, making manipulation and fraud difficult.

Third, adaptability. Token creators can set total supply, decimal places, choose a name and ticker. This allows each project to customize the token to its specific needs.

However, in practice, ERC-20 also shows limitations. Although a universal standard, it restricts functionality. ERC-20 tokens cannot perform some complex operations that require more flexible solutions. Additionally, each transaction incurs a gas fee, which can be substantial during periods of high network activity. This discourages users with small capital.

There is also a technical issue: if a user accidentally sends ERC-20 tokens to a smart contract address not programmed to accept them, they may be lost forever. The standard does not have an embedded mechanism to notify the contract of incoming tokens.

Real-World Examples: How Popular ERC-20 Tokens Work

Tether (USDT) on the Ethereum blockchain is one of the most used ERC-20 tokens. It’s a stablecoin pegged 1:1 to the US dollar, created to reduce volatility and facilitate transfers between exchanges. As of current data (February 2026), USDT remains critical for trading pairs on centralized exchanges.

Uniswap (UNI) is a decentralized exchange based on an automated market maker model. Its native token UNI (current price ~$3.46) is a classic ERC-20 governance token that allows holders to participate in protocol governance. Unlike traditional exchanges, Uniswap has no central operator or order book.

Maker (MKR) is a governance token for the MakerDAO protocol, enabling users to create DAI, a decentralized stablecoin. MKR holders vote on protocol development and system parameter management. One token equals one vote in governance.

BNB (current price ~$610.60) is an interesting case because it’s not only an ERC-20 token but also the native currency of the ecosystem. Although BNB exists on multiple networks, its presence on Ethereum also confirms the versatility of the ERC-20 standard.

Evolution: Alternatives After ERC-20

While ERC-20 remains the dominant standard, the Ethereum ecosystem continued to evolve. ERC-165 allows contracts to declare supported interfaces, improving compatibility. ERC-721 revolutionized the market by introducing non-fungible tokens (NFTs), each unique.

ERC-777 proposed an improved transfer mechanism with enhanced privacy. ERC-1155 enabled developers to create more efficient multi-tokens, saving on fees through batch operations. ERC-223 addressed the problem of token loss by allowing refunds for tokens sent to incorrect addresses. ERC-621 added flexibility in managing token supply after issuance.

Each new standard addressed specific issues encountered in practical use of ERC-20, demonstrating ongoing innovation in this area.

Impact of ERC-20 on the Modern Blockchain Landscape

The launch of the ERC-20 standard was a pivotal moment in Ethereum’s history and the cryptocurrency industry. It’s not just a technical standard—it’s the foundation upon which the entire DeFi ecosystem, governance protocols, stablecoins, and Web3 token economy have grown.

ERC-20 proved that standardization can be a powerful tool for innovation. Instead of limiting possibilities, a unified standard opened them up. Developers gained a reliable foundation to experiment and create new solutions.

Today, ERC-20 is not just a historical artifact but a living standard used daily by millions of users and tens of thousands of projects. Its significance for the development of Ethereum and the entire blockchain industry is immeasurable. Understanding how ERC-20 works is essential for anyone looking to grasp how the modern crypto ecosystem functions.

Frequently Asked Questions About ERC-20

What does ERC-20 stand for?

ERC-20 stands for Ethereum Request for Comment 20. It is the formal name of the technical standard for smart contracts on the Ethereum blockchain.

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

ETH (Ether) is the native currency of the Ethereum network, used to pay for transactions and computations. ERC-20 is a technical standard that tokens created on Ethereum must follow. One is the main network currency, the other a set of rules for derivative assets.

Are ERC-20 and Ethereum the same?

No. Ethereum is a full blockchain platform. ERC-20 is a technical standard defining how developers should create tokens within that platform.

What’s the best wallet for storing ERC-20 tokens?

The choice depends on your needs. There are hardware wallets for maximum security and software wallets for convenience. Popular options include MetaMask for browsers and various mobile wallets, but it’s important to do your own research before choosing.