Advantages of using Tokens?

Question

Why should I use a (ERC 20) Token instead of just using Ether? What advatages does it have, besides making money out of nothing?

Answer 1

Ether allows just for the basic purpose of transferring funds between accounts, which is indeed what conventional monetary systems are all about.

Tokens (such as ERC20) are implemented as smart contracts, allowing you to embed programmatic functionality (more sophisticated than just fund-transferring) into your system.

Answer 2

Issuing your own ERC20 token is like issuing shares of stock on top of ETH as a currency. Each company has its own, trading under its own symbol like TSLA or GOOG, and you want their price to vary independently. It serves a different purpose than U.S. Dollars, but the shares of stock operate on top of USD and is priced relative to it.

Like shares of stock, cryptocoins are priced partially by two factors: * how it is minted. If you can create new shares out of nothing, pretty soon you'll inflate the supply and collapse your price. * how it is redeemed. If no one wants to accept your coin or you can't spend it or trade it for anything, its price will also go down.

You can also think of ERC20 as apps run on top of an operating system which is Ethereum, or as a separate namespace where you control the token supply and redemption. Will you issue new tokens every time you add a new room to your hotel that guests can book? Will your users be able to query your web service using your token? It's up to you. If you allow it to be publicly traded, its price will reflect, among other things, people's faith that you are managing your project well, that they will, in fact, get an ice cream cone or whatever you've promised them if you bring you their token.

Ethereum enables you to define such flexible behavior above (with some difficulties related to linking a real-world thing to a digital asset). Its founders have already decided that ETH * is minted when a new latest block is found by miners, once every ~15 seconds, according to the rules of the Ethereum protocol. * is redeemed when users want to run steps in a smart contract, called gas. Expensive computations cost a lot of gas, cheaper computations cost less.

ETH has a value, based partly on how much people believe that such a world multicomputer is valuable, so when you transact in ETH, you don't have to make up the value from scratch. You can just use it like money, although as a currency, it's still pretty hard to use.

Deploying a new ERC20 is easy, but creating something of lasting value is hard. You get to decide what your rules for minting and redeeming are for your own token, which gives you freedom but uncertainty.