ERC-20 is the technical standard for smart contracts on the Ethereum blockchain to create new tokens, proposed in 2015 by Ethereum developer Fabian Vogelsteller.
A smart contract is essentially a code that runs on the blockchain and can be used to create decentralised applications, such as the prediction market Augur or the distributed market for CPU power Golem. With these decentralised applications, a token is created to monetise the application as well as providing crypto-economic incentives for the users.
The ERC-20 is the standard (or set of rules that must be followed) to create such a token. These rules cover how tokens are transferred, important data related to the token such as the total supply, and ensures that the token will behave consistently across the Ethereum ecosystem.
The full set of rules for an ERC-20 token can be found here.
The ERC-20 standard was the main driver behind the wave of initial coin offerings (ICOs) in 2017, as it easily allowed projects to create their own token and raise funds in BTC, ETH and other cryptocurrencies. Tokens can also be used to represent other assets, like the US Dollar or digital collectables.
Examples of ERC-20 tokens include:
- Stablecoins like Tether (USDT) and TrueUSD (TUSD),
- The Basic Attention Token (BAT) that powers the Brave browser ecosystem, and
- The Status Network Token (STN) which powers the Status instant messenger and mobile browser.
A complete list of ERC-20 tokens can be found here.
Since ERC-20 tokens are built and exchanged on the Ethereum blockchain, they can be stored in Ethereum wallets, although their addresses will be different to that of ether (ETH).