What is ERC-20?

What is ERC-20?

ERC-20 is the standard that defines how fungible tokens on Ethereum interact with applications. “Fungible” here means that one unit of the token carries the same value as another unit of the same type. It provides a common interface for operations such as querying a token balance, sending it to another address, and granting spending permission to a contract.

Thanks to this commonality, a wallet or exchange can support basic operations without having to write completely different software for every token. However, the standard does not determine the token’s price, total supply, or economic purpose. The risks of two ERC-20 compliant tokens can be very different from one another.

Why is spending permission requested?

For a swap application to use the ERC-20 token in your wallet, you may first need to grant permission. The transaction, known as “Approve,” authorizes a specific spender to use a certain amount. For example, a 100-token permission allows the relevant contract to use tokens within this limit. Unlimited permission, on the other hand, can expose a larger future balance to risk.

Granting permission and performing the swap can be separate transactions. Exiting the application or disconnecting your wallet does not automatically delete the on-chain permission. A separate network transaction may be required to remove permissions you no longer use.

Contract address instead of symbol

Fake tokens can be created with the same name and symbol. To identify the token, it is necessary to verify the contract address on the correct network from the official project source. The ERC-20 label is not a security certificate; the contract may have powers to pause, mint new tokens, or restrict addresses.

Additionally, to send this token on the Ethereum mainnet, transaction fees are usually paid in ETH. Simply having the token in the wallet may not be enough. For a similar standard token on another network, that network’s own fee asset is required.

Source

• ERC-20 standard text