I am searching for the ERC20. From what I found is that , tokens allow us to have our coins based on smart contracts. But I am little bit confused about the use cases of tokens? When I should use them , as long as I can use Ether instead ?? Could anyone give a nice explanation for tokens?

2 Answers 2


Tokens and Ether are not interchangeable in functionality.

Ether is a fundamental part of the Ethereum network. It is used to fund gas, which is literally the gasoline of the network. Users pay transactions fees in Ether, Miners get rewards in Ether, and Ether is managed as a part of the underlying Ethereum core blockchain.

On the other hand, tokens are really nothing more than a glorified accounting system. The smart contracts that power ERC20 tokens have simple functions which allow users to send funds between one another and identify how much people have.

By themselves, ERC20 tokens don't do anything (unlike Ether). However, these tokens usually represent certain securities or utilities, which is what ultimately gives them value and functionality.

For example, Binance has a cryptocurrency exchange which allows users to pay for the trading fees in their special ERC20 token at a discount rate. I suppose you could call this a utility token because the token has real world functionality based on how the engineers at Binance developed their exchange.

There are another class of tokens which act more like a stock in a company called security tokens. Usually these do not have an underlying functionality beyond the fact that they are tradable. Most tokens fall in this category because ultimately they don't really provide the user any real utility.

  • so a company A can create its own token, for instance, Token A, and users can buy such tokens to get some service from that company. Right?
    – Mohamed
    Commented Nov 19, 2018 at 19:40
  • The company would need to honor that, but sure. Note that there are a ton of legal hurdles to overcome when doing an ICO in the modern day. Commented Nov 19, 2018 at 22:28
  • What hurdles do you mean ?? By the way , I am working on a technical paper and I am trying to utilize tokens as a part of my application . I want to allow customers to get some service in exchange for tokens.
    – Mohamed
    Commented Nov 20, 2018 at 0:21
  • Take a look at this Commented Nov 20, 2018 at 0:26
  • I got it. again, I like the idea of using tokens to pay for services using smart contracts. again I want to use it in a research area. Last question, Could you please suggest me any startup online application or article so I can understand how can I work with ERC-20?
    – Mohamed
    Commented Nov 20, 2018 at 0:38

Ether is a global and predefined currency. You can't control the supply or ownership of it. On the other hand, an ERC20 token is your customized currency where you can control each aspect of it like :

  • What will the total supply?
  • Will the supply will be fixed or can be manipulated later and who has the right for token attributes manipulation?
  • What amount for total supply will be available to public?
  • When and where the token holders will be able to use the token?
  • What will be initial value (in ETH) of token, what will be the name and symbol of token?

and many more ....

There can be multiple use cases of token. You can introduce a platform to use the token for an utility token. You can back the token with assets. It all depends how you are willing to use it. It is fully customizable according to your terms and conditions which is not very much possible with Ether.

  • But at the end, users have to buy these tokens with ethers, right? so what the advantage of such conversion?
    – Mohamed
    Commented Nov 19, 2018 at 19:41
  • Yes. Advantage is designing your own version of currency for your own usecase that you cannot do with ether. Purchasing with ether does not make it unworthy for above implementations.
    – Aniket
    Commented Nov 20, 2018 at 4:53

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.