Could the ERC-20 tokens actually contribute to losing value of their ancestor, the ETH?

Many credit last year’s crypto bull market to the success of Ethereum as a hosting platform for Blockchain companies to launch their ICOs and release ERC-20 tokens. Ethereum has established its position as the second biggest blockchain in the space after Bitcoin. However, when it comes to the value of ETH tokens, there have been some contrarian views that doubt it can maintain its status as the de facto currency for compensating miners on the Ethereum blockchain.

Some have argued that ETH tokens have a weak value proposition because there are no hard requirements for Gas in an Ethereum contract and that as Dapps grow on the Ethereum blockchain, they will eventually circumvent the requirement for every transaction of their Coin to pay Gas in ETH. Instead, Dapps will make every transaction deposit a small number of their Coins directly to the miner’s address in order to execute the contract. The goal would be to incentivize miners to mine transactions without paying any fees in ETH.

Although this argument makes sense at face value, it fails to address the value of ETH from a credibility and reliability standpoint. In a year where we’ve seen most ICO tokens lose 90% of their value, some shutting down operations or even committing exit scams, the case for incentivizing miners with ERC-20 tokens (as opposed to ETH) is very poor. ETH comes with a large developer community, significant trading volume, and liquidity that currently just can’t be found with other ERC20 tokens. Miners would essentially need to recalculate their mining economics for each ERC20 token to determine which is worth mining and which isn’t. For tokens that have yet to prove their value, the opportunity cost is too great. Let’s also not forget the fact that most Dapps don’t even have more than 300 active users. From the perspective of a miner, these poor metrics are clear signs that a token has little or no value.

In a traditional economy, this viewpoint is analogous to suppliers and providers preferring to be paid in stocks, bonds, gold bars or diamonds, as opposed to the most liquid of assets (i.e., fiat money).

ETH as a Dapp ‘foundation’ token

ETH’s primary role is to act as a foundation for all Dapps on the Ethereum blockchain to function and grow in their transaction output without the need to immediately prove the value of their tokens.

Dapps are launched on the Ethereum blockchain, release tokens for users to transact with, yet still need transactions confirmed by miners using ETH. Dapps are incredibly risky ventures that require some form of network stability in order to slowly evolve into stable enterprises themselves. This means stability in terms of network support and miner incentives. Currently, only ETH tokens can provide such stability.

Conclusion

The argument that Dapps and their ERC20 tokens will eventually spring into their own totally self-sufficient ecosystems is admirable and forward thinking. However, it does not reflect the reality of the current state of blockchain as a technology and industry. The infancy of this space is such that Dapps will require several more months (if not years) of incubation before they can develop into something with enough user traction and a strong enough value proposition for miners to consider accepting their tokens instead of ETH.

Ethereum has been around since 2015, struggling through the ups and downs of the crypto market and slowly growing its community to the point where it has achieved scale and global recognition as the de facto platform for launching ICOs, smart contracts, and building Dapps. All of these functions require transactions to be validated using ETH tokens. So ultimately, as long as Ethereum continues to grow and remain a dominant player in the crypto space, ETH tokens will remain a default currency for miners to validate Dapp transactions, regardless of their particular scale or the ERC20 token utility value.