What is ERC-20? A Comprehensive Guide for 2025

In the Ethereum blockchain ecosystem, ERC-20 is one of the most widely used technical standards. It provides developers with a set of rules that enable them to issue their own tokens on the Ethereum network. Whether you’re a cryptocurrency investor, a developer, or simply a user interested in blockchain technology, understanding ERC-20 is an essential step toward gaining deeper insight into the Ethereum platform and its broader ecosystem.

This article offers an in-depth look at the definition of ERC-20, how it works, and its role in the cryptocurrency market in 2025. Whether you’re a newcomer or a seasoned blockchain enthusiast, you’ll find a comprehensive explanation of why this standard is so important.

Definition of ERC-20

ERC-20 stands for “Ethereum Request for Comments 20.” It was introduced in 2015 by Ethereum developer Fabian Vogelsteller to standardize the issuance and interaction of tokens on the Ethereum network. ERC-20 is a smart contract standard that specifies the basic functions and interfaces for tokens, making it easier and more efficient to develop and transfer tokens on the Ethereum blockchain.

Specifically, ERC-20 defines six required functions and three optional functions. These functions provide essential operations such as token creation, transfer, and balance inquiries, ensuring that all ERC-20-compliant tokens are interoperable and can perform the same functions across the Ethereum network.

The Six Required Functions of the ERC-20 Standard

1. totalSupply()
   Returns the total supply of tokens. This allows users and smart contracts to clearly understand the number of tokens circulating in the market.
2. balanceOf(address account)
   Checks the token balance of a specific address. This function enables users and other contracts to query the assets held at any given address.
3. transfer(address recipient, uint256 amount)
   Transfers a specified amount of tokens from the current account to a target address.
4. transferFrom(address sender, address recipient, uint256 amount)
   Allows an account to transfer tokens from another account through authorization. This is crucial for agent operations or third-party payment applications.
5. approve(address spender, uint256 amount)
   Authorizes an address to spend a certain amount of tokens from the account, commonly used for payment platforms or other services.
6. allowance(address owner, address spender)
   Checks the remaining amount an address is allowed to spend from another account, typically used to determine if authorization meets the preset limit.

The Three Optional Functions of ERC-20

In addition to the six required functions, ERC-20 includes three optional functions that enhance token functionality, though not every ERC-20 token implements them:

1. name()
   Returns the name of the token, such as “USDT” or “Dai.”
2. symbol()
   Returns the token’s symbol, usually an abbreviation like “ETH” for Ethereum or “BTC” for Bitcoin.
3. decimals()
   Returns the number of decimal places for the token, allowing developers to set the smallest unit. Typically, ERC-20 tokens use 18 decimal places, similar to Ethereum.

Advantages and Challenges of ERC-20

Advantages:

• Standardization and Compatibility
  The ERC-20 standard provides a unified interface, allowing different tokens to easily interact with each other. This streamlines the development process and reduces the likelihood of errors.
• Widespread Adoption
  As one of Ethereum’s earliest standards, ERC-20 has been embraced by many prominent projects and exchanges. It is widely used in decentralized finance (DeFi) applications and initial coin offerings (ICOs).
• Smart Contracts and Automation
  Because ERC-20 tokens rely on smart contracts, they offer a high degree of automation, enabling complex transactions to be executed without third-party intervention.

Challenges:

• Network Congestion and Transaction Fees
  ERC-20 token transactions depend on the Ethereum network, and issues like transaction fees (gas fees) and congestion can impact the speed and cost of token transfers. As Ethereum usage grows, ERC-20 transactions may face delays and rising costs.
• Lack of Native Scalability
  Since ERC-20 tokens are directly tied to the Ethereum blockchain, transaction speed and efficiency are limited by Ethereum’s own performance. While Ethereum 2.0 and Layer 2 solutions are driving improvements, scalability remains a challenge for now.

The Role of ERC-20 in 2025

By 2025, the ERC-20 standard continues to play a pivotal role in the cryptocurrency world. As the Ethereum ecosystem evolves, ERC-20 tokens have become the foundation for decentralized finance (DeFi) and tokenized assets. Exchanges, wallets, and decentralized applications (dApps) almost universally support ERC-20 tokens.

Moreover, more businesses and projects are choosing the ERC-20 standard for tokenization due to its openness and programmability, which allow projects to adapt flexibly to market demands. Importantly, ERC-20 tokens can also interact with other Ethereum projects and protocols, helping to build a tightly connected crypto economy.

Conclusion

As the foundation for token issuance on the Ethereum blockchain, the ERC-20 standard is undoubtedly a major innovation in the world of cryptocurrency. By providing a unified specification and functional interface, ERC-20 makes token creation, transfer, and management more efficient and straightforward. In 2025, as the Ethereum ecosystem continues to grow, ERC-20 will remain a powerful backbone for decentralized applications, DeFi protocols, and blockchain projects.

For developers and investors alike, understanding the ERC-20 standard not only helps you better grasp the tokens available in the market, but also lays a solid foundation for future participation in blockchain projects. Whether you’re looking to issue your own token or invest in the space, ERC-20 will continue to be a key standard you can’t afford to ignore.