What Is ERC-20?
ERC-20 is the technical standard for creating fungible tokens on Ethereum. It defines a common interface with specific functions (transfer, approve, balanceOf, totalSupply) that every ERC-20 token must implement. This standardization means any ERC-20 token automatically works with every Ethereum wallet, DEX, and DeFi protocol that supports the standard.
How ERC-20 Works
The standard specifies six mandatory functions and two optional ones. The key functions: totalSupply (total tokens in existence), balanceOf (tokens held by an address), transfer (send tokens), approve (authorize another address to spend your tokens), and transferFrom (execute an approved transfer). This simple interface enables composability: any protocol can interact with any token without custom integration.
Why It Matters for Traders
Understanding ERC-20 is fundamental for crypto traders because the vast majority of tokens they trade follow this standard. Token approvals (the approve function) have security implications: approving a malicious contract gives it permission to spend your tokens. Best practices include: revoking unnecessary approvals, using limited approval amounts instead of unlimited, and checking approval status regularly using tools like Revoke.cash.
