How to Create Your Own Cryptocurrency: Understanding ERC-20 Functions and Smart Contracts

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Creating your own cryptocurrency may sound like a complex task reserved for blockchain experts, but with the right tools and knowledge, it’s more accessible than ever. In this guide, we’ll walk you through the core components of building an ERC-20 token—a widely adopted standard on the Ethereum blockchain. Whether you're exploring blockchain development for the first time or expanding your technical expertise, understanding the foundational functions of ERC-20 is essential.

After setting up your digital wallet in the previous step, the next phase involves coding your cryptocurrency using the ERC-20 standard. This standard ensures compatibility across decentralized applications (dApps), exchanges, and wallets. To get started, you can download the reference templates EIP20.sol and EIP20Interface.sol from trusted repositories. These files serve as blueprints for your token.

The EIP20Interface.sol file defines the interface—essentially the skeleton—of what an ERC-20 token should include. It outlines the functions and events that must be implemented, providing clarity on the required APIs. Let’s explore each function in detail to understand how they power your cryptocurrency.

Core Functions of ERC-20 Tokens

1. function transfer(address _to, uint256 _value) public returns (bool success);

This function enables users to send tokens directly from their wallet to another address. The _to parameter specifies the recipient's wallet address, while _value indicates the amount of tokens to transfer.

Security is enforced through a validation check:

require(balances[msg.sender] >= _value);

This line ensures the sender has enough balance before initiating the transfer. If the balance is insufficient, the transaction reverts automatically, preventing unauthorized or erroneous transfers.

This is one of the most frequently used functions in any token system, forming the backbone of peer-to-peer transactions.

👉 Discover how blockchain networks enable secure digital asset transfers.

2. function transferFrom(address _from, address _to, uint256 _value) public returns (bool success);

Unlike transfer, this function allows third-party contracts or services to move tokens on behalf of a user—but only with prior authorization. This is crucial for use cases such as decentralized exchanges (DEXs), where users approve a contract to spend their tokens during trading.

The function takes three parameters:

Internally, two checks ensure security:

uint256 allowance = allowed[_from][msg.sender];
require(balances[_from] >= _value && allowance >= _value);

These lines verify both the account balance and whether the spender has been granted sufficient allowance by the owner.

This mechanism introduces trustless delegation—users retain control while enabling automation in DeFi protocols.

3. function balanceOf(address _owner) public view returns (uint256 balance);

A fundamental read-only function, balanceOf retrieves the token balance of any given address. By passing _owner (the wallet address), the function returns the current balance stored in the contract.

Since it’s marked as view, it doesn’t modify the blockchain state and can be executed locally without gas costs. This makes it ideal for frontend integrations, where user balances are displayed in real time.

4. function approve(address _spender, uint256 _value) public returns (bool success);

This function allows users to authorize a third-party address (such as a DeFi platform) to spend up to a specified amount of their tokens. The _spender is granted spending rights up to _value, which can be used across multiple transactions as long as the total doesn’t exceed the approved limit.

For example, if you approve a DEX to spend 100 of your tokens, it can execute several trades totaling no more than 100 without requiring further confirmation.

This functionality powers seamless interactions across decentralized finance ecosystems—from lending platforms to automated market makers.

5. function allowance(address _owner, address _spender) public view returns (uint256 remaining);

Complementing the approve function, allowance lets you check how many tokens a spender is still allowed to transfer from an owner’s account. It returns the remaining approved amount.

This transparency is vital for user experience and security. Users can monitor active permissions and revoke them if needed, reducing risks associated with over-approval.

Frequently Asked Questions (FAQ)

Q: What is an ERC-20 token?
A: ERC-20 is a technical standard used for issuing and implementing tokens on the Ethereum blockchain. It defines a common set of rules for token behavior, including transferability, balance checks, and approval mechanisms.

Q: Do I need coding experience to create an ERC-20 token?
A: While basic Solidity knowledge helps, many tools today offer no-code or low-code solutions for deploying tokens. However, understanding core functions like transfer and approve ensures safer and more effective implementation.

Q: Can I modify these functions after deployment?
A: No—once a smart contract is deployed on the blockchain, its code is immutable. Any changes require deploying a new contract. This underscores the importance of thorough testing before launch.

Q: Are all cryptocurrencies based on ERC-20?
A: No. ERC-20 applies specifically to Ethereum-based tokens. Other blockchains have their own standards—for example, BEP-20 on Binance Smart Chain or SPL tokens on Solana.

Q: How do I prevent someone from draining my token balance?
A: Always review and limit approvals given to third-party platforms. Use tools that let you revoke allowances, and avoid approving unlimited amounts unless absolutely necessary.

👉 Learn how secure digital wallets protect your crypto assets.

Moving Forward: Variables and Events in ERC-20

Now that we’ve covered the core functions, future sections will dive into the variables and events that support these operations—such as balances, allowed, and Transfer/Approval events. These components maintain state integrity and provide transparency by logging key actions on the blockchain.

Understanding both functions and underlying data structures gives developers full control over token behavior and security.

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By mastering these foundational concepts, you're well on your way to launching a functional, secure cryptocurrency on Ethereum. Whether for a project, community, or innovation experiment, the power of decentralized technology is now within reach.