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ERC20 Token Tutorial: Understanding the Basics

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In the ERC20 Token Tutorial: Understanding the Basics, you will gain a comprehensive understanding of ERC20 tokens, which are the most popular type of tokens on the Ethereum blockchain. These tokens can represent fungible assets such as company shares, virtual currencies, and vouchers. The tutorial delves into the ERC20 specification and its various functions, including simple transfer with transfer() and delegated transfer with approve + transferFrom(). It provides a practical example of delegated transfers through the use of decentralized exchanges (DEX). Whether you are a developer looking to learn how to transfer ERC20 in your smart contract or simply seeking to understand how ERC20 tokens work, this video tutorial by EatTheBlocks will provide you with valuable insights. Additionally, the tutorial covers ether units (Wei, Gwei, etc.) and Ethereum gas, and includes a cheat sheet with important information on ERC20 tokens. Awareness of the limitations of ERC20 tokens, such as the risk of sending tokens to incompatible contracts, is also highlighted.

Understanding ERC20 tokens is essential for anyone interested in the Ethereum blockchain and its ecosystem. By following this tutorial, you will gain a solid foundation in ERC20 token functionality and learn key concepts such as transfer, transferFrom, approve, and allowance. Don’t miss out on the opportunity to enhance your knowledge and skills in this critical aspect of Ethereum development.

ERC20 Token Tutorial: Understanding the Basics

ERC20 Token Tutorial: Understanding the Basics

Introduction to ERC20 Tokens

ERC20, or Ethereum Request for Comments 20, is a technical standard used for implementing tokens on the Ethereum blockchain. It defines a set of rules and functions that Ethereum-based tokens must follow to facilitate seamless interaction and interoperability. ERC20 tokens have gained significant popularity due to their widespread use in Initial Coin Offerings (ICOs) and decentralized applications (dApps).

Functions of ERC20 Tokens

ERC20 tokens implement a variety of functions that enable token transfers and interactions with the Ethereum network. Some of the key functions include totalSupply(), balanceOf(), transfer(), approve(), allowance(), and transferFrom(). These functions allow users to check token balances, transfer tokens, approve delegated transfers, and more. By following the ERC20 standard, tokens can be easily integrated into various wallets, exchanges, and dApps, ensuring compatibility and ease of use.

Transfer() Function

The transfer() function is one of the fundamental features of ERC20 tokens. It allows token holders to transfer tokens from their own address to another Ethereum address. The function takes two parameters: the recipient’s address and the amount of tokens to be transferred. Before executing the transfer, the function checks if the sender has sufficient balance to cover the transaction. If the sender does not have enough tokens, the transfer will fail.

To perform a simple transfer using the transfer() function, you need to initiate a transaction from your Ethereum address to the recipient’s address, specifying the token contract address, the amount to be transferred, and the gas limit. Once the transaction is confirmed on the Ethereum network, the tokens will be transferred to the recipient’s address.

Delegated Transfers with Approve + TransferFrom()

Delegated transfers allow token holders to authorize third parties to conduct transfers on their behalf. This is achieved using the approve() and transferFrom() functions. The approve() function is used to grant permission to a specific address to spend a certain number of tokens from the sender’s account. Subsequently, the authorized address can use the transferFrom() function to transfer tokens from the sender’s address to another address.

This mechanism is commonly used in scenarios such as decentralized exchanges (DEX), where users deposit their tokens into smart contracts and authorize the DEX contract to execute trades on their behalf. By utilizing the approve() and transferFrom() functions, users can delegate the transfer of tokens without the need for direct interaction for each transaction.

ERC20 Token Tutorial: Understanding the Basics

Example of Delegated Transfers: Decentralized Exchanges (DEX)

Decentralized exchanges (DEX) heavily rely on delegated transfers to facilitate the trading of ERC20 tokens. In a DEX, users deposit their tokens into smart contracts, which act as escrow accounts. Traders then place buy or sell orders using these deposited tokens. When a trade is executed, the DEX contract uses the transferFrom() function to transfer the tokens from the seller’s address to the buyer’s address.

Delegated transfers in DEX provide several advantages. Firstly, they eliminate the need for users to trust the exchange with their private keys, as the tokens remain under their control until a trade is executed. Secondly, it allows for efficient and automated trading, as the DEX contract can perform transactions on behalf of multiple users simultaneously. However, delegated transfers also come with risks, such as potential smart contract bugs or vulnerabilities that could lead to the loss of funds.

Transferring ERC20 in a Smart Contract

Transferring ERC20 tokens within a smart contract requires careful implementation to ensure proper handling of tokens. It involves utilizing the transfer() and approve() functions, as well as managing balances and allowances within the contract.

When transferring tokens within a smart contract, it is crucial to update the token balances of the relevant addresses using the transfer() function. Additionally, if delegated transfers are involved, the approve() function must be used to grant the contract permission to transfer tokens. The transferFrom() function can then be employed within the contract to execute the desired transfers.

To ensure the security of ERC20 transfers within smart contracts, it is recommended to follow best practices, such as validating input parameters, properly handling return values, and implementing checks to prevent potential vulnerabilities like reentrancy attacks or integer overflows/underflows.

ERC20 Token Tutorial: Understanding the Basics

Other Ethereum Tokens in the Series

In addition to ERC20 tokens, the Ethereum ecosystem supports various other token standards, such as ERC721, ERC777, and ERC1155. These token standards serve different purposes and have unique features that cater to specific use cases.

For example, ERC721 tokens are non-fungible tokens (NFTs) that represent ownership of unique digital or physical assets. They are often used for collectibles, gaming items, or real-world asset representation. ERC777 tokens, on the other hand, introduce new functionalities such as the ability to execute hooks before and after token transfers, enabling more complex token interactions. ERC1155 tokens combine the features of both ERC20 and ERC721 tokens, allowing for the creation of both fungible and non-fungible assets within a single contract.

Understanding the differences between these token standards is essential for developers and users looking to leverage the full potential of the Ethereum blockchain.

Understanding Ether Units and Ethereum Gas

When interacting with the Ethereum network, it is important to grasp the concepts of Ether units and Ethereum gas. Ether units, such as Wei, Gwei, and Ether, denote different denominations of Ethereum’s native cryptocurrency.

Wei is the smallest unit of Ether, representing 1 quintillionth of an Ether. Gwei, short for Gigawei, is equivalent to one billion Wei. Ether, the most commonly used unit, is equal to one quintillion Wei. These units are used to denote token balances, gas costs, and transaction fees within the Ethereum ecosystem.

Ethereum gas, on the other hand, refers to the computational cost required to execute a transaction or smart contract on the Ethereum network. Each operation within a transaction consumes a specific amount of gas, and users need to provide enough gas to cover the computational effort. Gas costs are denominated in Gwei and are paid in Ether.

Managing gas costs and understanding the relationship between gas consumption and transaction complexity is crucial for efficient and cost-effective token transfers on the Ethereum network.

ERC20 Token Tutorial: Understanding the Basics

Optional Functions in ERC20 Token Implementation

While the ERC20 standard defines several mandatory functions, it also allows for the implementation of optional functions to enhance the functionality of tokens. Some commonly used optional functions include name(), symbol(), and decimals(). These functions provide additional information about the token, such as its name, symbol, and decimal places for display purposes.

Implementing optional functions can improve user experience and facilitate the integration of tokens into various platforms, but they are not required for basic ERC20 token functionality.

Important Functions in ERC20 Token Implementation

Apart from the optional functions, certain core functions play a critical role in the implementation of ERC20 tokens. These functions include totalSupply(), balanceOf(), transfer(), approve(), allowance(), and transferFrom(). Implementing these functions correctly ensures the proper functioning and compatibility of tokens within the Ethereum ecosystem.

The totalSupply() function returns the total supply of tokens created, while balanceOf() allows users to check their token balance. approve() grants permission to a specific address to spend a certain amount of tokens, and allowance() checks the remaining amount approved for a given address. transfer() allows users to send tokens to another address, and transferFrom() enables delegated transfers.

By correctly implementing these important functions, developers can ensure their tokens conform to the ERC20 standard and are compatible with the wide range of Ethereum wallets, exchanges, and dApps.

Limitations of ERC20 Tokens

While ERC20 tokens have become the standard for tokenization on the Ethereum blockchain, they do have certain limitations. One limitation is the lack of built-in functionality for certain use cases, such as managing complex ownership structures or enabling more sophisticated interactions between tokens. Additionally, token transfers consume gas on the Ethereum network, which means there are associated transaction costs.

Furthermore, ERC20 tokens are susceptible to potential security vulnerabilities. Smart contracts governing ERC20 tokens may contain bugs or be vulnerable to attacks, leading to potential financial losses. It is crucial for developers and users to thoroughly audit and test smart contracts before deploying and interacting with them.

Despite these limitations, ERC20 tokens have revolutionized the tokenization space, enabling the creation of decentralized economies, crowdfunding through ICOs, and a wide array of innovative blockchain applications.


Understanding the basics of ERC20 tokens is crucial for developers, users, and anyone interested in participating in the Ethereum ecosystem. ERC20 tokens provide a standardized framework for creating and interacting with tokens, enabling seamless integration into wallets, exchanges, and dApps. By grasping the functions, concepts, and limitations of ERC20 tokens, individuals can make informed decisions and leverage the full potential of tokenization on the Ethereum blockchain.

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