ERC-20 is a technical standard used to issue and implement tokens on the Ethereum blockchain. It was proposed in November 2015 by Ethereum developer Fabian Vogelsteller. The standard describes a common set of rules that should be followed for a token to function properly within the Ethereum ecosystem. Therefore, ERC-20 should not be considered as a piece of code or software. Instead, it may be described as a technical guideline or specification.
The ERC-20 standard makes it easier for developers to predict with more accuracy the interaction between different tokens and applications. It also defines how ERC-20 tokens are transferred within the Ethereum blockchain and how their respective supply and address balances are being consistently recorded.
In other terms, the ERC-20 gives developers a list of rules to follow, which enables seamless functioning within the larger Ethereum platform. Numerous decentralized applications (DApps) and services support ERC-20 tokens, making it easier for community members and businesses to adopt and use them on a wide range of applications (such as cryptocurrency wallets, decentralized exchanges, games, and so forth).
There are several ERC20-compliant tokens deployed on the Ethereum blockchain, but with distinct and unique implementations. Depending on the approach, the tokens can be used to represent various kinds of digital assets or tradable goods (such as coins, vouchers, gold certificates, loyalty points, and IOUs). Additionally, ERC-20 tokens may be used as a mean to tokenize voting rights during elections.
The ERC-20 standard reduced significantly the efforts required to create and issue a digital token, and this is probably related to the raising interest in ICO crowdfunding events and blockchain technology as a whole. Several projects are already using the technical standard, and the number of ERC-20 token contracts has grown drastically in the last couple of years. In mid-2017, there were around 5,500 ERC-20 smart contracts on the Ethereum network. In early 2018, this number grew to over 40,000 and is now more than 160,000.
Although the majority of tokens on the Ethereum network follow the ERC-20 standard, there are some exceptions. Ether (ETH), for instance, was created before the standard and does not comply with it yet. This led to the creation of the so-called Wrapped Ether (WETH) - which is an ERC-20 token that represents Ether at a 1:1 ratio (1 WETH = 1 ETH). WETH allows users to trade their ETH to other ERC-20 tokens on decentralized exchanges.
Technically, the ERC-20 standard describes six functions that maintain some functionalities and features of Ethereum-based digital tokens. These functions include the way tokens are transferred between addresses and some important data related to the token smart contract, such as symbol, name, and supply.