What Is the ERC-20 Token Standard, and How Does It Work?

When you first encounter cryptocurrency, you often see “This coin is an ERC-20 token.” What exactly is ERC-20, and why do so many tokens follow the same specification? Here is a beginner-friendly explanation.

What Is ERC-20?

ERC-20 is a set of rules for fungible tokens created on the Ethereum blockchain. ERC stands for “Ethereum Request for Comments,” and 20 is the proposal number. Think of it as a common blueprint for creating tokens.

“Fungible” means units of the same type can be exchanged one for one. Your 1 USDT has the same value as a friend's 1 USDT. By contrast, each NFT is unique and is not interchangeable in that way. ERC-20 is the standard for these mutually equivalent tokens.

Compatibility Provided by the Standard

ERC-20 requires tokens to provide the same functions. Representative examples are below.

Because all tokens operate in the same way, wallets, exchanges, and DeFi services do not need to write new code for each token. Supporting ERC-20 once lets them handle tens of thousands of tokens automatically. This compatibility is a key reason the ERC-20 ecosystem grew quickly.

Why Are Gas Fees Paid in ETH?

This is a common source of confusion for beginners. ERC-20 tokens use the Ethereum network to move. They do not have independent blockchains, and all transfer records are written on Ethereum. The transaction fee (gas) for sending them is therefore paid in ETH, the network's native currency, rather than in the token.

Differences from Other Chain Standards

ERC-20 is the Ethereum token standard. Other blockchains use their own token specifications.

• ERC-721 / ERC-1155 — Standards on Ethereum for unique NFTs.
• BEP-20 — BNB Chain's token standard, with a structure very similar to ERC-20; fees are paid in BNB.
• SPL — Solana's token standard; fees are paid in SOL.

The guide emphasizes that tokens with the same name on different chains can have different addresses. Sending Ethereum USDT to an incompatible BNB Chain destination can cause asset loss, so always verify the network when depositing or withdrawing. Network verification is also fundamental to scam prevention.

What Beginners Should Remember

ERC-20 is a shared specification for fungible tokens on Ethereum. Its compatibility allows a service to support many tokens through one integration. Moving tokens requires gas paid in ETH, while standards on other chains differ in addresses and fee currencies. Following a standard does not guarantee a token's value or safety, so examine its issuer and tokenomics separately.

This article is informational and is not an investment recommendation. Cryptocurrency is highly volatile and carries a risk of losing principal. Scam tokens can also comply with ERC-20, so make investment decisions carefully after sufficient research and using your own judgment.