What is the ERC-20 standard? What does it define?

Okay, no problem. This is a very core concept, and I'll explain it to you in plain language.

What is the ERC-20 Standard? What Does It Define?

Hey, that's a great question! It's a fundamental concept you absolutely need to understand when entering the Ethereum world.

You can think of ERC-20 as a "universal interface for tokens" or "token manufacturing instructions."

Before ERC-20 emerged, anyone could create their own tokens on Ethereum. The problem was, everyone had their own way of doing it – different functionalities, function names, and underlying code logic. This led to a huge issue:

Imagine every electrical appliance having its own unique plug. You'd need a pile of adapters at home, which would be incredibly inconvenient.

For digital wallets (like MetaMask) and exchanges (like Uniswap), supporting a new token meant writing a whole new set of code specifically to integrate with it. The workload was immense, a complete disaster.

That's when ERC-20 stepped in and essentially said: "Stop doing things haphazardly! From now on, any token issued on Ethereum must have these basic functions, and their names and parameters must follow my rules."

This way, all tokens created according to the ERC-20 standard are like using a universal USB-C connector. Wallets and exchanges only need to develop once to support all tokens that adhere to this standard.

So, What "Rules" Exactly Does ERC-20 Define?

This "instruction manual" specifies a set of core functionalities that all tokens must possess. While it might look complex at the code level, understanding it from a functional perspective is quite straightforward. It primarily boils down to these key concerns:

• totalSupply() - What's the total supply of tokens?

  • This function is used to query the total number of tokens that have been issued. For example, a token might have a total supply of 100 million.

• balanceOf(address) - Who owns how many tokens?

  • This function queries how many of a particular token are held in a specific wallet address. For instance, checking "my wallet" to see how much USDT I have.

• transfer(to, amount) - I want to send you tokens.

  • This is the most fundamental function: transferring a specified amount of tokens from my account to yours.

• approve(spender, amount) - I authorize you (or an application) to use my funds.

  • This one is quite unique and very important. It's not a direct transfer, but rather I authorize another address (e.g., a decentralized exchange's smart contract) to transfer a certain amount of tokens from my account.
  • For example: When you want to swap Token A for Token B on Uniswap, you first need to approve Uniswap's contract to take the Token A you wish to sell from your wallet. This is like giving your child a debit card with a $100 limit as a supplementary card; they can spend up to $100, but can't touch the rest of the money in your main account.

• transferFrom(from, to, amount) - Execute an authorized transfer.

  • Following the "approval" above, when the authorized address (e.g., the Uniswap contract) actually needs to perform the swap, it calls this function to transfer the tokens from your account to where they need to go.

• allowance(owner, spender) - Check the remaining authorized amount.

  • Used to query how much allowance you've granted to a specific address. For instance, checking how much money is left on your child's supplementary card.

Why Is This Standard So Important?

Simply put, it's about compatibility and interoperability.

Because of this unified ERC-20 standard:

1. Wallet Compatibility: Your MetaMask or any other Ethereum wallet doesn't need to develop separate functionalities for tens of thousands of different ERC-20 tokens. As long as a token adheres to the ERC-20 standard, the wallet can automatically recognize it, display its balance, and facilitate transfers.
2. Exchange Convenience: Decentralized exchanges (like Uniswap) and centralized exchanges (like Binance) can list new ERC-20 tokens with great ease. Since the interaction methods are standardized, it significantly reduces development and integration costs.
3. DApp (Decentralized Application) Composability: Various DeFi applications (lending, yield farming, etc.) can seamlessly integrate any ERC-20 token, allowing users to interact with a wide range of assets. This is like Lego bricks; they can be freely combined to create endless possibilities.

To Summarize

So, at its core, ERC-20 is a contract standard for "fungible tokens" on the Ethereum blockchain. "Fungible" means that each token is indistinguishable from another; the USDT I hold is exactly the same as the USDT you hold, and they are interchangeable.

It's not a piece of software, nor is it a company; rather, it's a public technical specification that everyone agrees to abide by. It's precisely this unified standard that has driven the flourishing DeFi ecosystem and diverse token economies we see today.