ERC-20 tokens are tokens built on the Ethereum blockchain. They are created from Ethereum and anyone can create an ERC-20 token. They are a form of cryptocurrency.

ERC-20 tokens are sometimes referred to as “standard tokens.” ERC-20 is a standard for creating smart-contract tokens on Ethereum. Just like credit cards follow a standard (length of numbers, CVV, etc.) and keyboards use the QWERTY standard, tokens are created according to the ERC-20 standard. It’s like a list of rules to which the token conforms.

ERC-20 tokens are used to operate decentralized applications (dapps) that run on smart contracts in the Ethereum Virtual Machine (EVM). You can think of them as the virtual quarters that are used to make purchases in the virtual vending machine. Another analogy would be the tokens used in arcades. Developers create the tokens for users to use in their dapp.

ERC-20 tokens have developed as a form of decentralized money market for cryptocurrency. They can be traded with other ERC-20 tokens and programmed into other Dapps on the Ethereum blockchain. The owner of an ERC-20 token controls the token just like other cryptocurrencies, by using a wallet with public and private keys. An ERC-20 token can be traded on Ethereum just like ETH. Users can store ERC-20 tokens in their wallet and send ERC-20 tokens to other wallets.

Transactions of ERC-20 tokens take place on the Ethereum blockchain, so the sender must pay a fee in ETH to pay for the computation. Therefore, a wallet account needs ETH in addition to the ERC-20 token for the transaction to happen.

ERC-20 tokens are common in decentralized finance. Examples of ERC-20 tokens include:

• USDC (USD Coin)
• USDT (Tether)
• DAI (Dai)
• LINK (Chainlink)

Users of the DeFi protocol Compound receive cTokens when they deposit cryptocurrency in the Compound wallet.