Building an ERC20 Token Contract

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Creating your own ERC20 token on the Ethereum blockchain has become a foundational skill for developers entering the world of decentralized applications (dApps) and digital assets. Whether you're building a game with in-game currency, launching a community token, or experimenting with DeFi protocols, understanding how to implement a secure and standards-compliant ERC20 token is essential.

This guide walks you through creating a simple yet functional ERC20 token using Solidity and OpenZeppelin’s trusted smart contract library. We'll explore core concepts like token supply, decimals, and built-in functionalities while ensuring your contract adheres to best practices.

Understanding the Basics of ERC20 Tokens

The ERC20 standard defines a set of rules that all fungible Ethereum tokens must follow. This ensures compatibility across wallets, exchanges, and dApps. Key features include functions for transferring tokens, querying account balances, and checking total supply.

To build our token, we'll use OpenZeppelin Contracts, a library of reusable and secure smart contracts. By inheriting from their ERC20 base contract, we avoid writing low-level code and reduce the risk of vulnerabilities.

Let’s create a fictional in-game currency called Gold (GLD).

// contracts/GLDToken.sol
// SPDX-License-Identifier: MIT
pragma solidity ^0.8.0;

import "@openzeppelin/contracts/token/ERC20/ERC20.sol";

contract GLDToken is ERC20 {
    constructor(uint256 initialSupply) ERC20("Gold", "GLD") {
        _mint(msg.sender, initialSupply);
    }
}

In this example:

Once deployed, you can check the deployer's balance:

> GLDToken.balanceOf(deployerAddress)
1000000000000000000000

And transfer tokens to another address:

> GLDToken.transfer(otherAddress, 300000000000000000000)
> GLDToken.balanceOf(otherAddress)
300000000000000000000
> GLDToken.balanceOf(deployerAddress)
700000000000000000000

👉 Learn how to deploy your first ERC20 token securely today.

The Role of Decimals in Token Design

One of the most misunderstood aspects of ERC20 tokens is the decimals field. Since the Ethereum Virtual Machine (EVM) only handles integers, fractional values (like 1.5 GLD) aren't natively supported.

To solve this, ERC20 introduces decimals, which determines how many digits come after the decimal point when displaying token amounts.

For example:

It’s important to understand that decimals affects only display logic—all internal calculations still use whole numbers. Wallets and exchanges must divide the raw balance by 10 ** decimals to show user-friendly values.

By convention, most tokens use 18 decimals, matching Ether's precision. OpenZeppelin’s ERC20 contract defaults to this value.

However, if you need a different setting—say, 6 or 8 decimals—you can override the function:

function decimals() public view virtual override returns (uint8) {
    return 16;
}

When minting or transferring tokens, always account for decimals:

// To send 5 GLD with 18 decimals:
transfer(recipient, 5 * (10 ** 18));

Choosing the right decimal count depends on your use case:

Using Prebuilt ERC20 Templates for Faster Development

For common use cases, OpenZeppelin offers preset contracts that include advanced features out of the box. One such option is ERC20PresetMinterPauser.

This template comes with built-in capabilities:

It also integrates Access Control, ensuring only authorized roles (like admin, minter, or pauser) can perform sensitive actions.

When you deploy this preset, the deployer automatically receives:

Using presets accelerates development and enhances security by relying on battle-tested code.

👉 Explore secure development tools and test your contract logic before launch.

Best Practices for Deploying Your ERC20 Token

Before going live, consider these key recommendations:

1. Audit Your Code

Even when using OpenZeppelin, custom logic can introduce bugs. Conduct thorough testing and consider third-party audits.

2. Test on Testnets

Deploy your token on networks like Sepolia or Goerli first. Use faucets to get test ETH and simulate real-world interactions.

3. Verify on Block Explorers

After deployment, verify your contract source code on Etherscan or Blockscout so users can trust its integrity.

4. Document Everything

Provide clear documentation on tokenomics, usage, and any special functions (e.g., pausing).

5. Plan for Upgrades (If Needed)

Standard ERC20 contracts are immutable. If future upgrades are required, consider using proxy patterns—but weigh the added complexity and risk.

Frequently Asked Questions (FAQ)

Q: Can I change the total supply after deployment?
A: Yes—if your contract includes a minting function. In our basic example, only the initial supply is set. To allow additional issuance, keep the _mint function accessible via role-based control.

Q: What happens if I send tokens to a wrong address?
A: Transactions on Ethereum are irreversible. Always double-check recipient addresses before sending. Lost tokens cannot be recovered unless the contract has a recovery mechanism (not standard in ERC20).

Q: How do I add metadata like logo and description?
A: While not part of ERC20, many platforms support optional metadata. You can register your token on services like Etherscan or CoinMarketCap to associate images and details.

Q: Is it safe to use OpenZeppelin’s preset contracts?
A: Yes—OpenZeppelin Contracts are widely audited and used across thousands of production projects. Always install them via npm and ensure you're using the latest stable version.

Q: Can I disable transfers permanently?
A: Not directly in standard ERC20. However, using ERC20PresetMinterPauser, you can pause transfers indefinitely. Alternatively, build a custom "blacklist" or "lock" mechanism (though this impacts decentralization).

Q: Do I need to pay gas fees to transfer tokens?
A: Yes—every transaction on Ethereum requires gas, paid in ETH. The sender covers these costs. Some Layer 2 solutions offer lower fees for frequent micro-transactions.

Final Thoughts

Building an ERC20 token doesn’t have to be complex. With OpenZeppelin’s robust libraries and a clear understanding of core concepts like supply and decimals, anyone can launch a compliant digital asset.

Whether you're creating a utility token, reward system, or experimental currency like GLD, following security best practices ensures long-term reliability and user trust.

As blockchain technology evolves, so do token standards—but ERC20 remains a cornerstone of Web3 development.

👉 Start building and managing your digital assets with confidence.