Note: This issue contains a large amount of Solidity code. Readers without a development background may not need to delve too deeply into its meaning.
From the ICO frenzy in 2017 to the DeFi revolution, the ERC-20 protocol has always been the cornerstone of the Ethereum ecosystem. It is not only a standardized tool for token issuance but also the core infrastructure of the blockchain economic system. This article will unveil the underlying logic of how this protocol has reshaped global financial innovation through technical logic, historical impact, and future evolution.
1. The Birth of ERC-20: Order in Chaos
The Ethereum dilemma in 2015:
Early Ethereum developers found that each token project customized its transfer rules, leading wallets and exchanges to adapt interfaces for each token individually. Users could lose assets due to format errors, and the ecosystem was severely fragmented.
The breakthrough by Vitalik Buterin and Fabian Vogelsteller:
In November 2015, Ethereum developer Fabian Vogelsteller proposed the ERC-20 standard (Ethereum Request for Comments 20), unifying token interaction rules through 6 core functions and 3 optional functions:
Required functions:
balanceOf(): Query account balance
transfer(): Initiate transfer
transferFrom(): Authorize transfer (for exchanges)
approve(): Set authorization limit
allowance(): Query authorization limit
totalSupply(): Get total token supply
Optional functions:
Token name (e.g., "Chainlink")
Token symbol (e.g., "LINK")
Decimal places (e.g., 18, corresponding to 1 ETH = 10¹⁸ Wei)
How does standardization change the world?
One-click access for exchanges: Binance only needs to develop a set of ERC-20 interfaces to support all compliant tokens.
Seamless compatibility for wallets: MetaMask can display any ERC-20 token balance without updates.
DeFi building blocks: Uniswap achieves automatic token exchange through standard interfaces, giving rise to liquidity mining models.
2. Technical Anatomy of ERC-20: From Functions to Security Traps
A simplest ERC-20 contract
(Solidity code)
contract MyToken {
mapping(address => uint256) public balances;
function transfer(address to, uint256 value) public {
require(balances[msg.sender] >= value);
balances[msg.sender] -= value;
balances[to] += value;
}
// Other functions omitted…
}
This code, though simplified, reveals the core logic of ERC-20: achieving value transfer through on-chain accounting.
3. The Economic Revolution of ERC-20: From ICO to DeFi
The driving forces behind the ICO frenzy in 2017 were as follows:
5-minute token issuance: By copying template code through Remix IDE, anyone could create "XX token". ![ERC-20 Protocol: The "Universal Currency Template" of the Blockchain Worldaicoinfig1](https://static.aicoinstorge.com/article/20250213/173941029055895.png "ERC-20 Protocol: The "Universal Currency Template" of the Blockchain Worldaicoinfig1")
Disruptive fundraising efficiency: The DAO project raised $150 million in one month, shocking traditional VCs.
Bubbles and chaos: Statistics in 2018 showed that over 80% of ICO projects were scams or failures.
What are the value reconstructions in the DeFi era?
ERC-20 stablecoins like USDT and USDC have become the pricing anchors of DeFi, with on-chain settlement exceeding $11 trillion in 2023.
Governance token model:
Tokens like UNI and AAVE achieve decentralized voting through ERC-20, allowing the community to decide on protocol parameter adjustments.
Liquidity certificates:
LP Tokens (such as ERC-20 certificates from Uniswap V2) make liquidity shares tradable and collateralizable.
Classic case: Uniswap's "Token Magic"
Users deposit ETH and USDT to obtain LP Tokens → Receive trading fee dividends with LP Tokens → Collateralize LP Tokens in Compound lending → Lending certificates can be traded again…
In this process, ERC-20 becomes the carrier of value flow, enabling infinite combinations of financial operations.
4. Challenges and Evolution of ERC-20
Protocol limitations - No callback mechanism
The recipient cannot automatically process tokens (requires ERC-223 to supplement the tokenFallback function).
Inefficient batch transfers - Transferring to 100 addresses requires initiating 100 transactions (ERC-1155 supports batch operations).
Privacy flaws - All transaction records are publicly accessible (Aztec Protocol is developing a privacy-focused ERC-20 solution).
Next-generation improvement plan - ERC-777
Adds hook functions, allowing recipients to reject or process tokens, preventing accidental transfers to contract addresses.
ERC-20P - Introduces permission control (e.g., freezing suspicious accounts) to meet compliance needs.
ERC-1400 - Increases support for security tokens (equity distribution, KYC verification).
What transformations does Layer 2 bring?
In Layer 2 networks like Optimism and Arbitrum, ERC-20 transfer fees have dropped to the $0.01 level, making small payments and social tokens possible.
5. Philosophical Insights of ERC-20: The Paradox of Standardization and Innovation
Standardization is the foundation of innovation: Just as the TCP/IP protocol gave rise to internet applications, ERC-20 provides the cornerstone of composability for the blockchain economy.
Excessive standardization may stifle diversity: The simplicity of ERC-20 has led to a proliferation of homogeneous tokens, while ERC-721 (NFT) has opened new frontiers by breaking standards.
The art of dynamic balance: Ethereum continuously iterates through EIPs (Improvement Proposals), seeking optimal solutions between stability and evolution.
The story of the ERC-20 protocol is essentially an epic of humanity's attempt to constrain value with code. From technical standards to financial revolutions, it has witnessed the madness and chaos of the crypto world while nurturing the order and brightness of a decentralized economy. One day in the future, when blockchain becomes the default protocol for global value transfer, ERC-20 may silently write history as the "accounting standards of the digital society."
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