The ERC in ERC-20 stands for Ethereum Request for Comment, and the 20 indicates a proposal on the blockchain. The proposal ID number identifies the collection of protocols that must be followed to produce, transfer, or share tokens with that specific ID, with the ERC-20 list being the most popular set of protocols.

ERC-20 is built on the Ethereum platform. Therefore, it helps to have a solid understanding of Ethereum to define ERC-20. On the Ethereum blockchain, users may create and trade different kinds of tokens that stand in for smart contracts.

ERC-20 tokens are being used as a standard for developing smart contracts on the Ethereum blockchain, while there are other standards under which tokens can be generated within Ethereum. All other tokens that adhere to the same protocols as ERC-20 are compatible with each other and can be traded.

ERC-20 outlines the protocols and features for tokens produced under its umbrella. ERC-20 makes no attempt to explain the motivation behind the design of each unique coin. Instead, it makes it possible for new tokens to be constructed relatively easily by describing how they must function. In contrast to producing them on your own blockchain, it gives users confidence in the security of that token.

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