If you think that ERC20 tokens are something new and terrible, think again. Our world is already full of tokens:
- Currencies of different countries are tokens. In order to buy something, say, in Ukraine, you need Ukrainian Hryvnias. When you buy something in Ukraine with your dollar credit card, you are charged in dollars, but a bank exchanges it into Hryvnia behind the scenes.
- You then exchange those “tokens” for another type of “tokens”, which, for example, may grant you access to a public transit or your favorite cinema.
- Any form of discount can be considered tokens. You can use discounts in particular places and trade them for other “tokens”.
- Any item, like stamps or fridge magnets, can be considered tokens!
Of course, the more tokens we have, the harder it is to manage all of them. But eventually, everything will always be compared to the most stable token (as it is today for USD or EUR).
As far as you probably know, in order to transfer common ERC20 tokens, token owners must have Ether on their balances. This introduces quite a big inconvenience for users: in addition to the tokens they want, they also need to get Ether somewhere. Imagine spending dollars and then being asked to also hand over some Hryvnias.
Managing two crypto assets instead of one creates more problems both for users (they have to manage two assets instead of one) and application owners (as each little complication drastically drops the number of users).
The Need of Ether
The need of Ether to transfer tokens is not just about how Ethereum was made. To keep any decentralized network (today’s blockchains) running smoothly, it requires support and that doesn’t come free. The payment usually comes in the form of some kind of currency fee or computing power. If everyone made transactions without paying network fees, the network would be spammed with millions of transactions and, eventually, reach its peak capacity.
In Ethereum, you must pay fee in Ether for any network state change, thus rewarding miners for including your transaction into the block. Fees in Ether are paid for each transaction, including transferring Ether, deploying smart contracts and executing smart contract functions.
Taking into account that current Ethereum is made of nearly 90% different ICOs and transactions that utilize ERC20 tokens, an inconvenience about holding Ether makes those projects highly narrowed only to those users who are experienced enough in terms of Ethereum, and not useable at all for the masses.
If you have ever learned about the technical part of Ethereum, you’ve probably noticed web3.