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ERC stands for Ethereum Request for Comments and 20 is the unique number of the proposal. ERC20 is a standard for tokens created on the Ethereum blockchain.
Anyone can create a new cryptocurrency by using Ethereum’s infrastructure. They will not be required to invest in building their own blockchain, server architecture, etc. If certain functions are included within the token’s smart contract, it is said to be ERC20 compliant.
The difference between ERC20 and other cryptocurrencies is that ERC20 is pegged to the Ethereum network, hosted by Ethereum addresses and sent by Ethereum transactions. At the time of writing, 47,877 ERC20 token contracts exist with many more being added daily. You can find a a complete and updated list of all tokens on https://etherscan.io/tokens.
Why create ERC20 compliant tokens?
ERC20 compliant tokens allows for a simplified process of trading. As new tokens can be created on the Ethereum blockchain, developers are often left defining and redefining rules. If each token has its own rules, the transfer of tokens becomes extremely difficult as equivalents are not readily apparent. Therefore, the ERC20 protocol allows for the exchanges tokens to be more practical and efficient.
The ERC20 protocol has created an element of standardisation across token development and this standard is something users have come to expect.