How Do ERC-20 Tokens Work?
ERC-20 tokens are smart contracts operating on the Ethereum blockchain. They adhere to a standardized framework established by the Ethereum community, enabling diverse functionalities without compromising the network’s integrity. Key aspects include:
- Sub-Ledger Accounting: Each token maintains its own ledger, tracking balances without interfering with Ether (ETH) holdings.
- Interoperability: The ERC-20 standard ensures seamless interaction between tokens, wallets, and decentralized exchanges (DEXs).
- Gas Fees: Transactions require ETH to pay for gas, reinforcing Ethereum’s economic model.
👉 Explore ERC-20 Token Development
Purpose of ERC-20 Tokens
Developers created ERC-20 tokens to:
- Standardize Token Creation: Simplify the process of launching new tokens.
- Ensure Compatibility: Enable tokens to work across platforms (e.g., MetaMask, Uniswap).
- Foster Innovation: Provide tools like Solidity and the Ethereum Virtual Machine (EVM) for building decentralized applications (DApps).
Core Features of ERC-20 Tokens
| Feature | Description |
|---|---|
| Name & Symbol | Unique identifiers (e.g., "DAI" for MakerDAO’s stablecoin). |
| Decimal Precision | Defines divisibility (e.g., 18 decimals for granular transactions). |
| Balance Tracking | Smart contracts monitor address balances in real-time. |
| Transfer Logic | Supports peer-to-peer transfers and automated "allowance" approvals. |
FAQ Section
Q1: Can ERC-20 tokens be mined?
A: No—they’re pre-minted via smart contracts.
Q2: What’s the role of gas in ERC-20 transactions?
A: Gas fees (paid in ETH) validate transactions on Ethereum.
Q3: Are ERC-20 tokens secure?
A: Yes, but audits are crucial to prevent vulnerabilities (e.g., reentrancy attacks).
Q4: Can ERC-20 tokens represent physical assets?
A: Yes (e.g., tokenized real estate), though compliance varies by jurisdiction.
👉 Learn More About Token Standards
Why ERC-20 Dominates Ethereum
Developer-Friendly:
- Supports multiple programming languages (Solidity, JavaScript).
- Reduces coding complexity with standardized APIs.
Enhanced Security:
- Features like "allowance" limit unauthorized withdrawals.
Scalability:
- Over 500,000 ERC-20 tokens exist today, powering DeFi, NFTs, and governance systems.
Final Thought: ERC-20’s flexibility and Ethereum’s robust infrastructure make it the go-to standard for tokenization.
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