Reading the standard

The ERC20 standard is a short, simple read. Take a look for yourself. Here are the Solidity function signatures of the whole interface:

function name() public view returns (string)
function symbol() public view returns (string)
function decimals() public view returns (uint8)
function totalSupply() public view returns (uint256)

function balanceOf(address _owner) public view returns (uint256 balance)
function transfer(address _to, uint256 _value) public returns (bool success)

function transferFrom(address _from, address _to, uint256 _value) public returns (bool success)
function approve(address _spender, uint256 _value) public returns (bool success)
function allowance(address _owner, address _spender) public view returns (uint256 remaining)

An ERC20 token is a smart contract that conforms to this interface. Let's walk through each of the functions.

First up are a few functions that return metadata about the token:

function name() public view returns (string)
function symbol() public view returns (string)
function decimals() public view returns (uint8)
function totalSupply() public view returns (uint256)

• name returns a human-readable name, like "Dai Stablecoin."
• symbol returns a short symbol, like "DAI"
• decimals returns the number of decimal places used to denominate the token. Most ERC20 tokens use 18 decimals, the same number used to subdivide Ether.
• totalSupply returns the total supply of the token.

Next, we have two functions related to reading balances and sending tokens:

function balanceOf(address _owner) public view returns (uint256 balance)

The balanceOf function returns the token balance of the account with address _owner.

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

The transfer function sends some quantity of tokens _value from the caller account's address to the account with address _to. It's up to the implementation to keep track of balances and transfers internally in whatever way makes sense.

Finally, we have three functions that enable third parties to send tokens on behalf of a user. These are important in order to allow smart contracts to withdraw and spend tokens on behalf of externally owned accounts. Most of the essential complexity in ERC20 lives here:

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

transferFrom is a third-party transfer sending _value tokens from the _from address to the _to address. Before a third party can call transferFrom, the _from user must first call the next function:

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

approve allows the _spender address to withdraw and transfer a quantity _value of tokens. The _spender may withdraw multiple times, up to the _value amount. This approved amount is called an "allowance," which leads to the next function:

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

allowance returns the remaining quantity of tokens _spender is allowed to withdraw on behalf of _owner.

...and that's it! These nine functions are the foundation of the many thousands of ERC20 tokens on the Ethereum blockchain.