ERC-20 is a technical standard used for creating and managing fungible tokens on the Ethereum blockchain. The term “ERC” stands for Ethereum Request for Comments, while “20” is the identification number assigned to the proposal that introduced this token standard. ERC-20 established a common set of rules that Ethereum-based tokens can follow, making them easier for wallets, exchanges, decentralised applications, and other smart contracts to support.

ERC-20 tokens are fungible, meaning each unit of the same token is interchangeable with another unit of equal value. For example, one unit of an ERC-20 token is generally identical to another unit of that same token. This makes the standard suitable for cryptocurrencies, stablecoins, governance tokens, utility tokens, and other digital assets.

The ERC-20 standard defines several functions that a token contract can implement, including checking balances, transferring tokens, approving another address to spend tokens, and checking spending allowances. It also defines events, such as transfers and approvals, which allow applications to track important token activities.

One of the biggest advantages of ERC-20 is interoperability. Because tokens follow a recognised standard, developers can integrate them into existing Ethereum infrastructure without creating completely different systems for every token. Users can often hold and transfer compatible tokens through supported wallets, while exchanges and DeFi platforms can interact with them using standardised methods.

However, ERC-20 tokens still depend on smart contracts and the Ethereum network, so users may face gas fees and potential smart contract risks. Overall, ERC-20 has played a major role in making Ethereum a flexible platform for issuing and using digital assets across a wide range of blockchain applications.