Crypto 101: What is ERC20?

Welcome to our tutorial Crypto 101: What is ERC20? The design of ERC20 tokens is for use solely on the Ethereum network. If you are not very familiar with what Ethereum is, check out our Ethereum 101 article.

ERC stands for Ethereum Request for Comment. They act as a guideline or standard for users wanting to create new tokens within the Ethereum ecosystem. Moreover, the system helps to manage transactions and keep track of the holder’s balance. Tokens that are created using ERC20 do not have an independent blockchain, instead they are built upon Ethereum’s blockchain. So when you are sending ERC20 tokens, the requirement is to pay Ether as GAS (as transaction fee).

6 Mandatory Rules

Having mentioning all that, we have to talk about the 6 mandatory rules:

Total supply (to determine the total number of tokens in the market) 

Balance Of (the contract will distribute the requested amount to the given address which belongs to the owner of the contract)  

Transfer (To set a certain number of tokens to be transferred from the total supply to user accounts) 

Transfer from (This function allows users to transfer tokens to other users.)

Approve (To check the transaction against the total supply of tokens by summing up users’ balance) 

Allowance (Users are not allowed to request more tokens, as this function will make sure the user’s account has sufficient balance, if not, the transaction will be cancelled.)


ERC20 creates a platform for those without any programming knowledge to customize their own token. This not only simplifies the developers’ job by not having to change the system whenever releasing a new coin, but also allows users to create tokens that satisfy their own needs. 


The ERC20 certainly falls short at some points especially with the low entry point allowing everyone to create their own tokens. Such a benefit also creates the possibility of scams that may exist in the Ethereum ecosystem. Despite these limitations, the ERC20 still proves to be a guideline that has profoundly impacted the crypto-space. To mediate challenges ERC20 is facing, the Ethereum community is currently working on a new guideline called ERC233. Hopefully, this will help resolve issues that the community is facing. 

Thanks for reading our tutorial Crypto 101: What is ERC20? Hope you learned more about ERC20 after reading this article. Feel free to send us a message via our email. 

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