ERC20 Token Standard: What It Is and How It Works

ERC20 is a technical standard used for creating fungible tokens on the Ethereum blockchain. ERC stands for Ethereum Request for Comments, and 20 is the proposal number. Since its introduction in 2015, ERC20 has become the backbone of the Ethereum token ecosystem, enabling thousands of tokens to operate within a consistent, interoperable framework.

The standard defines six mandatory functions that every ERC20 token contract must implement: totalSupply, balanceOf, transfer, transferFrom, approve, and allowance. These functions ensure that any ERC20 token can interact seamlessly with any wallet, exchange, or decentralized application that supports the standard.

Well-known ERC20 tokens include Tether (USDT), USD Coin (USDC), Chainlink (LINK), Uniswap (UNI), and Shiba Inu (SHIB). Despite their different use cases, all follow the same ERC20 interface, making them easy to integrate into the broader Ethereum ecosystem.

Every ERC20 transaction requires gas, paid in ETH. The amount of gas depends on the complexity of the token's smart contract. Simple ERC20 contracts cost around 65,000 gas units per transfer. Tokens with built-in fees, staking mechanisms, or other features consume more gas — sometimes 150,000 units or more per transfer.

ERC20 paved the way for other Ethereum token standards. ERC-721 introduced non-fungible tokens (NFTs). ERC-1155 supports both fungible and non-fungible tokens in a single contract. Despite these newer standards, ERC20 remains the dominant standard for fungible digital assets on Ethereum.