Studying ERC20 Token Standard: A Progress Report

As part of my journey into smart contract development and security auditing, I decided to study the ERC20 Token Standard — one of the most widely adopted standards in Ethereum. In this article, I’ll share what I’ve learned so far: its origins, significance, key functions, real-world use cases, and common security pitfalls developers need to be aware of.

What Are EIP and ERC?

Before diving into ERC20, it’s important to understand where it comes from:

EIP (Ethereum Improvement Proposal): A formal document anyone can submit to propose improvements to the Ethereum blockchain protocol or ecosystem. EIPs cover everything from consensus changes to application-level standards.
ERC (Ethereum Request for Comments): A category within EIPs that focuses specifically on application-level standards such as tokens, wallet interfaces, and name registries. ERCs make sure developers across the ecosystem can build interoperable applications.

What Problem Did ERC20 Solve?

Before ERC20, each token contract was custom-built with its own unique functions. This meant wallets, exchanges, and dApps had to write custom integration code for every single token, which slowed down adoption and made the ecosystem fragmented.

ERC20 solved this by introducing a common interface for fungible tokens. With it, any wallet, exchange, or dApp that supports ERC20 can work with all ERC20 tokens automatically. This massively improved interoperability and was a turning point for Ethereum’s growth.

How Does ERC20 Solve the Problem?

Proposed in 2015 by Fabian Vogelsteller and Vitalik Buterin, ERC20 defines a set of mandatory functions and events that every compliant token must implement. These functions cover total supply, balances, transfers, allowances, and approvals. By standardizing them, developers only need to integrate ERC20 once to be compatible with all tokens.

ERC20 Implementation Essentials

Here are the core building blocks of an ERC20 token:

Main Functions

1. Total Supply

function totalSupply() public pure returns (uint256) {
    return 100 ether; // Example total supply
}

2. Balance Query

mapping(address => uint256) private _balances;

function balanceOf(address _owner) public view returns (uint256 balance) {
    return _balances[_owner];
}

3. Transfer Tokens
Transfers tokens to another address and emits a Transfer event for synchronization.

event Transfer(address indexed from, address indexed to, uint256 value);

function transfer(address _to, uint256 _value) public returns (bool success) {
    require(balanceOf(msg.sender) >= _value, "Insufficient balance");
    _balances[msg.sender] -= _value;
    _balances[_to] += _value;
    emit Transfer(msg.sender, _to, _value);
    return true;
}

4. Approve Allowance

event Approval(address indexed owner, address indexed spender, uint256 value);

mapping(address => mapping(address => uint256)) private _allowances;

function approve(address _spender, uint256 _value) public returns (bool success) {
    _allowances[msg.sender][_spender] = _value;
    emit Approval(msg.sender, _spender, _value);
    return true;
}

5. Allowance Query

function allowance(address _owner, address _spender) public view returns (uint256 remaining) {
    return _allowances[_owner][_spender];
}

6. Transfer From (Spender)

function transferFrom(address _from, address _to, uint256 _value) public returns (bool success) {
    uint256 _allowance = allowance(_from, msg.sender);
    require(balanceOf(_from) >= _value, "Insufficient balance");
    require(_allowance >= _value, "Not authorized");

    _balances[_from] -= _value;
    _balances[_to] += _value;
    _allowances[_from][msg.sender] -= _value;

    emit Transfer(_from, _to, _value);
    return true;
}

Optional Functions

While not mandatory, these improve user experience:

function name() public pure returns (string memory) {
    return "Mossad";
}

function symbol() public pure returns (string memory) {
    return "MM";
}

function decimals() public pure returns (uint8) {
    return 18;
}

Why Use Audited Implementations?

Although writing ERC20 from scratch is possible, it’s risky. Subtle mistakes can introduce severe vulnerabilities. That’s why most developers rely on audited libraries like OpenZeppelin’s ERC20 implementation, which includes security protections, gas optimizations, and community trust.

Real-World ERC20 Token Projects

Uniswap (UNI): Governance token enabling holders to vote on protocol changes such as fee structures and treasury management.
USD Coin (USDC): A stablecoin pegged 1:1 to the USD, widely used for payments, trading, and remittances without volatility.
Aave (AAVE): Governance and utility token powering the Aave lending protocol, used for staking and protocol governance.

These examples demonstrate ERC20’s versatility: governance, stable payments, and DeFi utility.

Key ERC20 Security Issues

1. Allowance Race Condition

Problem: If a user changes an allowance, a spender could exploit transaction ordering and spend both the old and new allowance.

Fixes:

Require setting allowance to zero before updating.
Use increaseAllowance / decreaseAllowance.
Adopt ERC-2612 Permit for signature-based approvals.

Final Reflection

Studying ERC20 gave me a deeper understanding of how tokens work on Ethereum and why standards matter so much for interoperability. It also introduced me to common pitfalls that developers and auditors must watch out for.

My next step is to explore other important ERCs like ERC721 (NFTs) and ERC4626 (tokenized vaults) to continue building my knowledge in Ethereum development and security auditing.

ERC20 Token

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