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I'm developing a prototype on credential management using blockchain and have been using Ethereum for the same. Having stumbled on TokenFactory and its ability to build ERC-20 compatible tokens. I was confused as to why exactly and when should one consider using tokens rather than rely on the Ethereum's currency of ether?

Is it just to tap into the "network ownership effects" to give an advantage to the early adopters of the Dapp?

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1) It's basically free to create tokens. Ethers always cost real money

2) You can write your own logic how and where the tokens can be used without fear of losing Ethers (real money) for unforeseen problems (bugs in your code, whatnot)

3) You can distribute the tokens how you want to represent whatever value you decide. Maybe you want to assign one token per user yawn? The more yawns you make the more tokens you get!

There is no explicit benefit in creating tokens "early" as they rarely have real monetary value - very few tokens are actually exchangable for other crypto assets in exchanges. Of course if you have a great commercial idea for a token it's good to be early before someone else makes the same thing.

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Gold or Fiat?

Why would you buy Gold instead of keeping your money in Fiat, or Microsoft stocks, or foreign currency, why would you buy an investment home, or put money into your superannuation, rather than rely on the country's default currency, the mighty dollar?

The answer of course is that the different assets have different properties, some go up while others go down. Moving funds from one to the other at the right time can net you a profit. Holding onto another past the time you should have sold can lose you the farm.

Currencies or assets (tokens) inside Ethereum's blockchains are not (directly) tied to the value of Ethereum. Some of them may actually be tied to real-world currencies or assets instead, and completely removed from the current value of cryptocurrencies altogether.

As Gabe points out in the comment, it's impossible to be completely separated from the value base of Ethereum in the same way that a house in the USA can't be separate from the value of it's base currency the USD, but at the same time your house's value is somewhat independent of the dollar and can appreciate and depreciate on it's own merits.

You see tokens can represent anything. I could have a token which is a deed to my car, and which people can use to rent my car, or buy it from me. They can represent securities, e-currencies, virtual kittens, revenue shares, houses, almost anything.

And just like the things they represent, some people want them more than they want the base currency, and some people want them less.

  • I would disagree and say that currencies and assets (tokens) inside Ethereum's blockchain are tied to the value of Ethereum. As an asset within Ethereum you'll never be able to outgrow Ethereum. Your market cap will never be the same size or bigger than Ethereum's size. And If Ethereums market cap would drop so would your token. – Gabe Apr 3 '18 at 12:02
  • Well, not tied to Ethereum in the same way that if the USD tanks, everything else does too. :) – norganna Apr 3 '18 at 12:06
  • If this answered your question, please mark it as the correct answer. If not let me know so I can further assist. – norganna Apr 10 '18 at 9:31

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