Why are there so many tokens?

Quick read

Ethereum made shared programs possible, and ERC-20 gave many of those programs a common way to represent interchangeable units. This lesson explains why standards let wallets and apps handle different tokens, why a token is not the same as ETH or a network, and which contract and approval risks remain.

Why did tokens multiply after programmable contracts?

Ethereum made it possible for a smart contract to keep its own record of units and the accounts that control them. Those units are commonly called tokens. A token can represent many different things, but it does not get its own blockchain merely because it has a name or a symbol.

ETH is different: it is Ethereum's native asset and is used to pay gas. An ERC-20 token is a smart contract's record on Ethereum. Moving that token on Ethereum still requires ETH for the network fee.

What does ERC-20 make common?

ERC-20 is a shared interface for fungible tokens. Instead of every project inventing a different way to ask for a balance or send units, a compatible contract exposes familiar functions such as balanceOf, transfer, approve, and allowance.

That common shape lets a wallet or application work with many token contracts without needing a separate integration for every one. It is a compatibility rule, not a statement that every token has the same purpose, issuer, or risk.

Why does a common interface matter to applications?

Smart contracts on Ethereum are public programs that other applications can call. When token contracts expose a familiar interface, a new application can combine existing pieces instead of starting from zero. This is called composability: separate components can work together to create a new service.

Composability explains why one token may appear in several wallets, applications, and trading venues. It does not mean those products are one company or that each integration has been reviewed for safety.

What does the standard not promise?

ERC-20 describes an interface, not whether a project is trustworthy, whether a token has value, whether it is backed by assets or reserves, or whether its contract has been safely designed. Even the standard's name, symbol, and decimals methods are optional usability features, so a familiar label is not proof of identity or backing.

The contract address and the network on which it runs determine which program is actually being used. A token that looks familiar in an interface can still be an unrelated contract with different rules. Deploying a token on Ethereum does not mean Ethereum has approved or endorsed it.

Why are approvals a separate risk?

An ERC-20 transfer moves tokens directly. An approval is different: it sets an allowance that permits another address, often a smart contract, to move up to a stated amount later through transferFrom. The permission can be used more than once until the allowance is exhausted or replaced.

This flexibility helps applications work together, but it also means an approval is not just a preview of one transfer. It is a permission granted to a specific spender under the token contract's rules.

What comes after tokens?

Standards helped many applications and assets share Ethereum's programmable environment. That usefulness also means more activity can compete for the same Layer 1 execution and block space. The next lesson examines why a shared base layer can become expensive or congested as demand grows.