What Is ERC20?

Ethereum Request for Comment 20 (ERC20) is a standard for the Ethereum blockchain that requires nine scripting functions and two events that must be used when creating a fungible token within a smart contract. It is perhaps easiest to think of ERC20 as a set of instructions that a smart contract on the Ethereum network must include.

History of ERC20

ERC20 was created by Ethereum developers on behalf of the broader Ethereum community in 2015 and was officially adopted in September 2017. In previous years, to create a standard of this type for Ethereum, a developer or group of developers submitted what was known as an Ethereum Improvement Proposal (EIP), describing the new functionality along with its specific protocols and standards. A committee then reviewed, approved, amended and finalized that EIP—at that point, it became an ERC.

Smart contracts and certain tokens within Ethereum are obligated to conform to one of the approved standards. While ERC20 is perhaps the most important and best-known of these ERC standards, it is not the only one in existence.

ERC20 Importance

The ERC20 standard has been a dominant pathway for creating new tokens in the cryptocurrency space for some time. There are tens of thousands of tokens that are ERC20 compliant.

Per official documentation, the ERC20 standard "...allows for the implementation of a standard API for tokens within Smart Contracts." In plain language, this means that a token (the alphanumeric sequence assigned to an asset) is created with the smart contract, making it only transferable if the conditions in the smart contract are met. An application programming interface (API) allows different applications that need access to the tokens the ability to do so.

This smart contract prevents parties from acting in bad faith because asset transfers are completed automatically, outside the control of the transactions, once they agree to the transaction.

For example, if Bob agreed to pay Alice 1 ETH for a new token she had created, it might be possible not to pay Alice once it was transferred. By keeping ownership locked to a smart contract, neither party needs to trust that the other would hold up their end of the bargain because the actions both need to take are completed for them.

ERC20 standardizes the way these smart contracts and tokens are created, letting them be reusable in other applications. This not only allows them to be easily inspected by interested parties, increasing transparency and trust in the system, but it also allows developers to use tokens and contracts that have already been created.

Contents of the ERC20 Standard

ERC20 contains nine functions that a compliant token must have:

• Name: The token's unique name
• Symbol: An abbreviation used as a ticker or for other identification purposes
• Decimals: How many decimal places the token will use, signifying how small an amount can be transferred or owned
• TotalSupply: Provides information about the total token supply
• BalanceOf: Provides account balance of the owner's account
• Transfer: Executes transfers of a specified number of tokens to a specified address
• TransferFrom: Executes transfers of a specified number of tokens from a specified address
• Approve: Allows a spender to withdraw a set number of tokens from a specified account
• Allowance: Returns a set number of tokens from a spender to the owner

Additionally, these functions will trigger up to two events:

• The Transfer Event: Takes place whenever tokens are transferred
• The Approval Event: Activated whenever approval is required

Other ERCs

While ERC20 has seen widespread support in the form of new tokens and token-based products conforming to its standards, there are many other token standards proposed.

There are more than 80 total ERCs implemented, and many more are submitted and waiting for approval or rejection. Some notable approved proposals include ERC223, which aims to address a concern with the approval and transfer elements of ERC20; ERC721, the standard for non-fungible tokens; and ERC3156, a standardization of flash loans.

The Bottom Line

ERC20 is a community-proposed standard for smart contracts and tokens associated with them. The standard allows users to transfer tokens and be re-used by any other Ethereum application. It also makes it easier for them to be approved because the standardized elements must all be present.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.