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# ERC-20 Content type: Glossary Term Summary: ERC-20 is like a universal format for digital stickers. Because every sticker follows the same shape and size rules, any sticker album can store them. This makes it easy for wallets to hold and trade many different types of tokens as if they were the same. Key concepts: Ethereum Ecosystem, Wide compatibility, Ease of integration, Standardized exchange support, Not suitable for unique items, Gas costs per transfer Related resources: - EVM (Glossary Term): https://theblockchainlibrary.com/glossary/evm - Smart Contract (Glossary Term): https://theblockchainlibrary.com/glossary/smart-contract - Smart Contract (Glossary Term): https://theblockchainlibrary.com/glossary/smart-contract - Token Standard (Glossary Term): https://theblockchainlibrary.com/glossary/token-standard - Wallet (Glossary Term): https://theblockchainlibrary.com/glossary/wallet - Wallet (Glossary Term): https://theblockchainlibrary.com/glossary/wallet - Discover Ethane: The Revolutionary Dex for Gas-Free Swaps (Article): https://theblockchainlibrary.com/article/discover-ethane-the-revolutionary-dex-for-gas-free-swaps - Cross-Chain Solutions in 2025: Are We Finally Interoperable? (Article): https://theblockchainlibrary.com/article/cross-chain-solutions-in-2025-are-we-finally-interoperable - The Tokenized Web: How Ownership Is Rewriting the Internet (Article): https://theblockchainlibrary.com/article/the-tokenized-web-how-ownership-is-rewriting-the-internet

Ethereum Ecosystembeginner

ERC-20

Q: What are the advantages of ERC-20?

Wide compatibility. Ease of integration. Standardized exchange support

Q: What are the limitations of ERC-20?

Not suitable for unique items. Gas costs per transfer

ERC-20 is the technical standard for fungible tokens on the Ethereum blockchain. It provides a set of common rules and functions that all tokens on the Ethereum network must follow to ensure compatibility across wallets, exchanges, and decentralized applications. By defining methods for token transfers, balance tracking, and approval processes, ERC-20 allows different projects to create their own digital assets while maintaining seamless integration with the existing ecosystem of tools and decentralized finance protocols.

Explain Like I'm 12

ERC-20 is like a universal format for digital stickers. Because every sticker follows the same shape and size rules, any sticker album can store them. This makes it easy for wallets to hold and trade many different types of tokens as if they were the same.

Why It Matters

It enabled the ICO boom and the foundation of DeFi. Without a common standard, every token would require custom software integration, making interoperability impossible.

How It Works

The standard defines a smart contract interface with specific functions like `totalSupply`, `balanceOf`, `transfer`, and `approve`. When a project launches a token, they deploy a contract that implements these functions. This allows any ERC-20 compatible wallet to recognize, store, and send the new asset without custom coding.

Real-World Example

Chainlink (LINK), Uniswap (UNI), and Tether (USDT) are prominent examples of ERC-20 tokens.

Advantages

Wide compatibility
Ease of integration
Standardized exchange support

Limitations

Not suitable for unique items
Gas costs per transfer

Common Misconceptions

Users often mistake ERC-20 as the only token standard on Ethereum.
People think ERC-20 tokens have no intrinsic value, ignoring the utility provided by their protocols.

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Related Terms

EVM

The Ethereum Virtual Machine (EVM) is a decentralized, Turing-complete computation engine that executes smart contracts on the Ethereum network. It functions as a global state machine, where the state is updated based on code execution on the blockchain. Because the EVM is implemented by every node in the network, it ensures that smart contracts run exactly as intended across all devices, regardless of local hardware differences. This allows for complex, programmable logic to be embedded into the blockchain.

Smart Contract

A smart contract is a self-executing program stored on a blockchain that automatically runs when predetermined conditions are met. These contracts eliminate the need for intermediaries by encoding terms directly into lines of code, ensuring that the agreement is enforced exactly as written without human interference. Because they reside on an immutable ledger, the execution results are verifiable, transparent, and impossible to tamper with once deployed.

Smart Contract

A self-executing program stored on a blockchain that automatically enforces and executes the terms of an agreement when predetermined conditions are met. Smart contracts are deterministic, immutable once deployed, and form the backbone of decentralized applications.

Token Standard

A token standard is a set of formal protocols and rules that define how tokens function within a specific blockchain network. These standards serve as an application programming interface (API) that ensures compatibility across various wallets, decentralized exchanges, and smart contracts. By following a standard, such as ERC-721 or ERC-1155 on Ethereum, developers ensure their assets can be interactively managed, traded, and tracked by any platform that supports that standard, facilitating seamless interoperability within the broader decentralized finance and NFT ecosystem.

Wallet

A blockchain wallet is a software or hardware tool that manages the private and public keys required to interact with a blockchain network. It does not store actual digital tokens; instead, it stores the cryptographic keys that allow the owner to authorize transactions and view their balance on the blockchain ledger. Wallets provide an interface for users to send and receive assets, manage identities, and interact with decentralized applications.