ERC-20 is defined as a proposed set of rules and standards for creating new cryptocurrency using Ethereum as the foundation. ERC-20 describes crypto made with Ethereum technology that follow these rules and standards.
ERC stands for “Ethereum Request for Comments”. The Ethereum system was designed so that anyone could propose improvements. Each proposal is known as an “Ethereum Improvement Proposal” (EIP) and given a unique identifying number. Once the EIP is approved by a committee, it becomes an ERC and is also given a number.
ERC-20 standards are valuable because they let people who create technology around crypto know how the tokens will behave. With ERC-20, programmers can create better programs that run smoother and more efficiently.
ERC-20 has not yet technically been approved by a majority of the Ethereum network. In other words, better standards are under development. But because ERC-20 is a logical proposal, it has been widely accepted and used as a standard for new crypto built with Ethereum’s technology.
There are many other ERCs regarding how crypto is made using Ethereum. Common examples include:
- ERC-223: A proposal almost identical to ERC-20 but that also minimizes accidental loss. Many users have accidentally sent their ERC-20 crypto to an incorrect address which locks them up, creating a permanent loss. ERC-223 would prevent that.
- ERC-721: A proposal to create unique identifiers on a crypto made with Ethereum. This unique quality is useful when creating collectibles, where each item needs to be distinctly different from every other item.