What is the relationship between ERC-20 tokens and Ether?

Question

I am trying to better understand the crypto currency space and am particularly drawn to Ethereum and some of the ERC-20 tokens coming out but I don't really understand what if any relationship they have to one another.

If more and more apps come out with ERC-20 tokens do those affect the value of Etherium? Are all tokens valued based on some difficulty of solving and is that readily available in non-programmer terms somewhere?

What I guess I'm trying to say is currently 1 Ether is $694.15 in USD. If there's a dApp (hope I'm using the right term) out there do they just randomly assign the value of their tokens or how is that price relationship determined?

I know today they're trying to make an ERC-20 app with tokens related to the USD. Do those tokens use 1/694 the power consumption of an Ether?

Answer 1

No, ether is simply the defacto currency of the ethereum network, used to incentivize block generation, as well as to pay for the gas costs that executing smart contracts require. The value of ethereum itself could rise or decrease based on any number of factors, such as increased network utilization leading to increased number of tokens on the network. But no, tokens themselves don't have any effect on the price of ether, but the effect it has on the community, by say releasing some amazing new token could cause a price increase in the evaluation of ethereum.

When it comes down to it, the price of all tokens are is basically speculative.

Answer 2

If you name the specific project you are interested in I could probably give you more details.

In general it's as hextet put it. Ether is the currency of the Ethereum network. Price is determined by supply and demand.

ERC-20 tokens on the other hand are a simple programm. All they do is:

1. Say that there are X tokens
2. Store the current balance for addresses
3. Allow users to send the tokens. The number of tokens is arbitrary. It would cost the same to create a hypothetical RyanToken with a supply of 1 as it would cost to create a RyanToken with a supply of 1 million. In the code that is only 1 number that changes.

ERC20 tokens use Ethereum as their infrastructure. Much like a shop on Amazon Marketplace does it's own thing but uses Amazon as infrastructure/platform.

This doesn't mean tokens are worthless. Many tokens are used to solve problems or represent real things and therefore have value.

As I understand your question you are mainly interested in a stablecoin (1 token will keep the value of 1 USD), correct?

This price stability can be achieved in various ways. Some stablecoins use other cryptocurrencies as collateral (e.g. https://makerdao.com/dai) other stablecoins receive fiat (USD) money and send you the token e.g. tether (Tether is based on Bitcoin, but I couldn't think of a Ethereum based stablecoin using this mechanism).

In both cases the price of the stablecoin and ether should be independent.