What are ERC-20 Tokens on the Ethereum Network?
ERC-20, or Ethereum Request for Comment 20, refers to a technical standard for creating and managing fungible tokens on the Ethereum blockchain. It was proposed by developer Fabian Vogelsteller in 2015 on the Ethereum GitHub page. The proposal aimed at creating rules to address the lack of standardization for tokens on the Ethereum blockchain, which led to difficulties in creating, using, and exchanging tokens. In September 2017, the ERC-20 standard was officially adopted as Ethereum Improvement Proposal 20 (EIP-20) and merged into the Ethereum protocol.
ERC-20 defines a set of rules that fungible tokens must follow, ensuring compatibility across the Ethereum ecosystem. These rules pertain to how ERC-20 assets are transferred within the Ethereum blockchain and how their supply and address balances are consistently recorded.
It has become the most widely adopted token standard in blockchain, allowing various decentralized applications (dApps), ICOs, and decentralized finance (DeFi) platforms to operate seamlessly with these tokens.
Tokens following this standard, or ERC-20 tokens, represent everything from digital assets to voting rights in decentralized governance. The standard is crucial because it streamlines the token creation and management, ensuring interoperability and simplifying token transactions across the network.
Today as a user, when you begin to explore Ethereum’s vast ecosystem, you will quickly notice that whether you are looking to participate in a DeFi platform swap via your DeFi wallet, invest in an ICO, or even receive airdropped tokens — you need to interact with ERC-20 tokens at some point. This is where the ERC-20 wallet comes in handy — it is the key to accessing and managing your tokens within the Ethereum network. Without it, you can’t move your tokens, participate in decentralized applications, or even secure your assets.
Did you know that the Ethereum blockchain has processed over 1 billion ERC-20 token transactions since its inception? ERC-20 tokens are among the most frequently traded crypto assets globally!
An ERC-20 wallet is a digital wallet that allows users to store, manage, and interact with ERC-20 tokens on the Ethereum blockchain.
What is an ERC-20 Wallet Address?
An ERC-20 wallet address is a unique string of characters that serves as an identifier on the Ethereum blockchain. Just like your email address allows you to send and receive emails, your ERC-20 wallet address enables you to send, receive, and store ERC-20 tokens.
How it Works
An ERC-20 wallet address typically starts with “0x” and consists of 42 characters — a mix of letters and numbers.
This address is tied to the wallet’s public key, allowing anyone to send cryptocurrencies to you. While the public key is shared freely, the private key must be kept secret as it grants access to the tokens in your wallet.
With this ERC-20 wallet address, users can interact with smart contracts on the Ethereum blockchain, and transfer or manage their ERC-20 tokens. Security is paramount when using an ERC-20 wallet address. Mismanaging private keys or sending tokens to the wrong address can result in permanent loss. Since blockchain transactions are irreversible, it is crucial to double-check wallet addresses before sending any tokens.
Popular blockchain networks, L2s, sidechains, etc., with the Ethereum ecosystem, such as Polygon, Binance Smart Chain, Arbitrum, and Optimism, all use the ERC-20 standard, making these wallet addresses widely compatible across different ecosystems.
Types of ERC-20 Wallets
In managing ERC-20 tokens, there are various wallet options, each with pros and cons. These wallets can generally be categorized into two types: hot and cold.
Hot Wallets
A hot wallet is a software-based cryptocurrency wallet that allows users to access their cryptocurrency on internet-enabled devices such as mobiles and laptops. They have been widely adopted because their interface and accessibility make it easier to transfer cryptocurrency.
While cryptocurrency users often use hot wallets because of their convenience, these wallets are more vulnerable to online threats like hacking.
Examples of hot wallets include:
- MetaMask: MetaMask is a cryptocurrency hot wallet that allows users to interact with the Ethereum blockchain and its dApps. It is available as a browser extension or mobile application.
- Trust Wallet: Trust Wallet is a multi-chain self-custody software wallet that supports multiple cryptocurrencies, including ERC-20 tokens.
Pros of hot wallets:
- Easy to set up and use.
- Convenient for frequent transactions.
Cons of hot wallets:
- Less secure as they are always online.
- Vulnerable to malware and phishing attacks.
Cold Wallets
Cold wallets, on the other hand, are not connected to the internet, offering a higher level of security. These are ideal for long-term storage of large amounts of tokens. These wallets usually come as hardware devices that look like USB sticks.
Popular cold wallets include:
- Ledger Nano: A hardware wallet that stores your private keys offline and looks like a USB device.
- Trezor: Another well-known hardware wallet offering high levels of security.
Pros of cold wallets:
- Extremely secure, especially for long-term storage.
- Private keys are stored offline, reducing exposure to online threats.
Cons of cold wallets:
- Less convenient for frequent transactions.
- Initial setup can be more complicated and expensive.
How to Get an ERC-20 Wallet Address?
Setting up an ERC-20 wallet and obtaining an address is relatively straightforward. Below is a step-by-step guide on how to get started:
Step 1. Choose your wallet
Decide whether you want a hot wallet (e.g., MetaMask, Coinbase wallet, Trust wallet) or a cold wallet (e.g., Ledger Nano, Exodus, Trezor). A hot wallet is typically easier to set up for beginners, while more advanced users or those handling larger sums of crypto may prefer the security of a cold wallet.
2. Install or set up your wallet
For MetaMask (hot wallet):
- Download MetaMask from the official website or your browser’s extension store.
- Install the extension and create a new wallet by following the on-screen instructions.
- Ensure to save your recovery phrase securely. This phrase is the only way to recover your wallet if you lose access.
- Your ERC-20 wallet address will be displayed in the MetaMask interface, starting with “0x.”
For Ledger Nano (cold wallet):
- Purchase a Ledger device from the official website. Always purchase sealed devices from official Ledger stores.
- Set up the device following the manufacturer’s instructions.
- Install the Ledger software to manage your crypto assets. Use it to generate your ERC-20 wallet address, which you can use to receive and store tokens.
3. Safeguard your private key
Once you have set up your wallet, it is crucial to protect your private key or recovery phrase. Never share this with anyone, and consider storing it in multiple secure locations. Without it, you will not be able to access your wallet.
4. Backup your wallet
Make sure to back up your wallet information, especially the recovery phrase, in case you lose access to your device. Backups are crucial for avoiding permanent loss of funds.
Why is it Important to Have an ERC-20 Wallet Address?
An ERC-20 wallet address is essential for anyone looking to participate in the Ethereum ecosystem. Here’s why:
Token transfers: An ERC-20 wallet address allows you to send and receive ERC-20 tokens, the most widely used tokens on the Ethereum blockchain. For example, if you are trading tokens on a cryptocurrency exchange like Binance or Uniswap, you will need an ERC-20 address to receive your purchased tokens. Similarly, when sending tokens to another user or platform, your ERC-20 wallet address acts as the destination address for these transactions. Without it, token transfers simply would not be possible.
ICO participation: If you want to participate in ICOs in the Ethereum ecosystem — where new crypto projects raise funds by offering tokens to early investors — you will need an ERC-20 wallet address. During an ICO, tokens are often distributed directly to investors’ ERC-20 addresses after the purchase.
Token airdrops: Airdrops are a popular way for blockchain projects to distribute tokens to users, often to promote a new project or reward loyal supporters. To receive these tokens for Ethereum-native projects, you must have an ERC-20 wallet address where the airdrop can be deposited. Some of the most significant ERC-20 token airdrops have rewarded users with massive value. One of the biggest was the Uniswap (UNI) airdrop in 2020. Users who had interacted with the Uniswap DEX before a certain date received 400 UNI tokens for free. At the time, those tokens were worth around $1,200, however, today, their value has increased manifold. Another highly anticipated airdrop was in March 2023 with Arbitrum. Over 42 million ERC-20 ARB tokens were claimed in the first hour as Arbitrum’s token airdrop went live.
DeFi and dApps: The growing DeFi space relies heavily on ERC-20 tokens for lending, borrowing, and earning interest on cryptocurrency. To use DeFi platforms like Compound, Aave, or Maker, you need an ERC-20 wallet address to connect with the platform and manage your tokens. For example, if you want to lend your ERC-20 tokens on Aave, your ERC-20 wallet address is your ticket to connecting with these services. Similarly, many dApps — whether for gaming, governance, or services — require users to have an ERC-20 address to interact with smart contracts and perform transactions.
Exchanges and trading: Most centralized and decentralized exchanges support ERC-20 tokens, which means you need an ERC-20 wallet address to trade on these platforms. For instance, when you withdraw tokens from an exchange like Coinbase or Kraken, they will ask for a wallet address to send the funds. Similarly, let’s say you are transferring Ethereum-based tokens from your MetaMask wallet to Binance for trading, you will use your ERC-20 wallet address as the Binance receiving address to complete the deposit. This address ensures your tokens end up in the right place. The same applies to sending tokens to an exchange for trading — you will need the exchange’s ERC-20 deposit address to complete the transaction.
Common Mistakes to Avoid
Managing an ERC-20 wallet comes with responsibilities. Here are some common mistakes and how to avoid them:
- Sending tokens to the wrong address: Always double-check the recipient’s address before sending tokens. Once a transaction is made, it cannot be reversed.
- Not backing up private keys: Failure to securely store your private key or recovery phrase will result in permanent loss of access to your tokens.
- Using unsecured networks: Avoid managing your wallet over public Wi-Fi to minimize the risk of hacking.
Conclusion
In summary, an ERC-20 wallet address is your gateway to the Ethereum ecosystem, allowing you to manage and interact with ERC-20 tokens. Whether you are using a hot wallet for convenience or a cold wallet for security, it is essential to follow best practices in safeguarding your private keys and backup information.
Are you now ready to get started? Well, set up your ERC-20 wallet today and take your first step into the world of Ethereum tokens. Explore more about Ethereum wallets and secure your assets now!