ERC-20 (Ethereum Request for Comments – 20) refers to a standard list of rules proposed in 2015 as a guideline for creating and issuing Ethereum-based tokens.
ERC-20 tokens are fungible in nature, meaning each token can be exchanged for one another as they represent the same digital entity. The protocol also supports the transfer of tokens to and from any digital wallet that supports Ethereum, and the tokens can represent a variety of digital assets (such as coins, in-game loyalty points etc.)
The ERC-20 protocol is best thought of as a technical standard for token generation and distribution, usually with a fixed token supply. The use of tokens gained popularity between 2017 and 2018, around the same period with the ICO (Initial Coin Offering) boom, with over 4000 + tokens created in that time frame alone. Today, most tokens created reside on the Ethereum blockchain network, and there are over 150,000 + tokens.
What is Ethereum, in the first place?
Ethereum is a peer-to-peer blockchain network of decentralized nodes of computers with a native currency known as Ether. Although Ethereum and ether are used interchangeably, they differ in that Ether is similar to Bitcoin, which runs on a fundamentally similar platform known as the Bitcoin blockchain.
Ethereum was not simply developed as an alternative to Bitcoin but also with added functionality as an improvement to the Bitcoin blockchain. Vitalik Buterin – Ethereum’s founder, wanted to explore other possibilities of blockchain technology and built the platform to support other uses besides a digital currency. Today, Ethereum is home to most existing decentralized applications (dApps), and its smart contracts functionally introduced with the ERC-20 standard make it the second most valuable cryptocurrency in the world after Bitcoin.