Payments
Digital units designed to move freely between anyone, such as payment tokens pegged to a currency.
Token standard
ERC-20: the simplest format for interchangeable units.
ERC-20 is the format most tokens you have heard of are written in. It does one job well: it keeps track of who holds how many identical units. It does not ask who those holders are, which is exactly what a regulated security needs to know.
- Introduced
- 2015
- Type
- Fungible
- Transfer rules
- None built in
What it is
ERC-20 was proposed in 2015 as a common format for tokens on Ethereum. Ethereum is a public blockchain: a shared database kept in sync by many independent computers, so records cannot be quietly rewritten. The name comes from Ethereum Request for Comments number 20, the public process where such formats are agreed.
The tokens it describes are fungible, meaning every unit is identical and interchangeable, like euros in a bank account or shares of one class. One unit is worth the same as any other unit of the same token.
How it works, in plain terms
- 01
A balance sheet of accounts
The token is a small program on the blockchain, called a smart contract: code that runs exactly as written and that nobody can pause by hand unless the code allows it. It holds a list of accounts and how many units each has.
- 02
Anyone can hold units
An account is controlled from a wallet, the software or device that holds the private key proving you control that account. Anyone can create one in minutes, with no identity check.
- 03
Anyone can send units
A holder can send units to any other account. The standard checks only that the sender has enough units. It does not ask who the recipient is or where they live.
- 04
Everyone can read it
Common functions such as balance and total supply mean every exchange, app and wallet can read an ERC-20 token without special work. That is why it spread so widely.
Where ERC-20 is the right tool
Utility and loyalty
Points or credits used inside a service, where open transfer is the intent.
Wide compatibility
When the goal is that every tool can read the token with no extra work, ERC-20 is the common baseline.
Why it falls short for regulated ownership of real assets
A security in an orchard, a building or a company comes with obligations. You may only sell to verified investors. Some countries may be excluded. There may be limits on how much one person can hold. A plain ERC-20 token has no place to write any of this down, so it cannot refuse a transfer that breaks those rules.
The result is that the investor register can drift away from what the law and your offering documents allow. If a holder loses access to their account, there is no standard way for the issuer to restore the holding. And if units reach someone who was never verified, the issuer may not even know who they are.
Some projects add custom restrictions to an ERC-20 token. That can work, but every custom change is new code that your counsel, auditors and later venue partners must review from scratch.
ERC-20 at a glance
- Introduced
- Proposed 2015, now a final Ethereum standard
- Type
- Fungible: identical, interchangeable units
- Built-in transfer rules
- None, beyond checking the sender's balance
- Identity
- Not part of the standard
- Issuer controls
- None in the standard
ERC-3643 keeps what works in ERC-20.
ERC-3643 tokens still behave like ERC-20 tokens for balances and transfers, so common tools can read them. The difference is that every transfer is checked against the investor's identity and your offering's rules first.
Questions we get
Is ERC-20 unsafe?
No. It is well tested and widely used. It simply was not designed to know who holds it, which is what regulated securities require.
Can we add restrictions to an ERC-20 token ourselves?
Technically yes, with custom code. The cost is that each change must be reviewed and audited on its own, and there is no shared format that other platforms or venues already understand.
Our investors already hold ERC-20 tokens. Will they be confused?
ERC-3643 tokens look familiar to their tools because they build on ERC-20. The main difference an investor notices is that they verify their identity before they can hold units.
General information about a public technical standard. Not legal, tax or investment advice.
Ready to raise money on your own platform?
Tell us about your project in five short steps. Within a week you'll know whether it fits, what's missing and how quickly your investor portal could go live.