What is ERC-20

ERC-20 is the technical standard that defines the rules and functions all fungible tokens on the Ethereum blockchain must implement to ensure compatibility with wallets, exchanges, and smart contracts. The acronym stands for Ethereum Request for Comment number 20 — the proposal number under which it was originally submitted to the Ethereum community in 2015 by Fabian Vogelsteller and Ethereum founder Vitalik Buterin.

WHY A TOKEN STANDARD MATTERS

Before ERC-20, developers creating tokens on Ethereum had to build completely custom smart contracts with unique function names and interfaces. A wallet wanting to support ten different tokens needed ten completely different codebases. The ERC-20 standard solved this by defining a universal interface a common set of functions every compliant token must implement. Now a single wallet integration supports every ERC-20 token automatically.

THE SIX REQUIRED ERC-20 FUNCTIONS

total Supply(): Returns the total number of tokens in existence. balanceOf(address): Returns the token balance of a specific address.

transfer(address, amount): Transfers tokens from the sender to a recipient.
transferFrom(address, address, amount): Allows a third party (like a DEX smart contract) to transfer tokens on your behalf after approval.
approve(address, amount): Grants permission to another address to spend up to a specified token amount.
allowance(address, address): Returns how many tokens have been approved for a third-party spender.

MAJOR ERC-20 TOKENS

Virtually every significant DeFi token is ERC-20: USDT (Tether), USDC, DAI, LINK (Chainlink), UNI (Uniswap), AAVE, SHIB, and thousands more. When MetaMask asks you to "approve" a token before using it in DeFi, that is the ERC-20 approve() function granting the protocol permission to move your tokens.

ERC-20 BEYOND ETHEREUM

The ERC-20 interface has been adopted across all EVM-compatible chains BNB Smart Chain tokens follow BEP-20 (essentially identical), Polygon uses ERC-20, Avalanche C-Chain uses ERC-20, making cross-chain token standards highly consistent.

Terms in addition to the ERC-20

Blockchain

A blockchain is a subset of a distributed database. The Bitcoin inventors originally prototyped the system in 2008. This modern database is made up of separate blocks that are connected together in a chronological chain. Blockchains may be used to store a wide range of data types. It has mostly been utilized as a public ledger for bitcoin transactions to date. A peer-to-peer network comprised of independent nodes uses a consensus process to ensure the blockchain's security and legitimacy. Each node in the network keeps a public and immutable copy of the data.

2 Factor Authentication (2FA)

2 Factor Authentication is a security measure with two layers. It is used by the majority of cryptocurrency exchanges. To log in, you must provide not only a password, but also a code obtained, for example, from the Google authenticator.

Airdrop

An airdrop is a method of distributing coins. End users can typically obtain coins for free or in exchange for doing a small task, such as subscribing to a newsletter, sending a tweet, or inviting others via a personal affiliate link. Cryptocurrency airdrops — the act of depositing cryptocurrency into public crypto wallets — are utilized as a marketing, liquidity creation, and network bootstrapping technique for many different types of blockchain initiatives.

Altcoin

Altcoin - "alternative coin" - is any kind of digital currency other than Bitcoin. Since the launch of Bitcoin, the world's first digital currency, many altcoins (as well as supporting blockchains) have been created. Altcoin digital currencies share many similarities to Bitcoin, but consistently and have significant differences. There are about 20,000 altcoins, and this number is expected to grow significantly in the coming years. Altcoins often develop Bitcoin features. Ethereum, currently the most widely used blockchain, supports digital contracts and separate applications where Bitcoin does not. Altcoins are also often created to cater to the needs of different users. The Litecoin blockchain, for example, can process payments quarterly for the duration of Bitcoin.

Cold Storage

Cold storage is the way to store cryptocurrency offline. The word refers to the use of offline wallets that are not connected to the internet. Cold storage is the most secure way to keep cryptocurrencies since an offline currency becomes less likely to be hacked and stolen. Paper wallets, printed renditions of private keys, and offline hardware and software wallets are all examples of cold storage.