Why did Sauron create the One Ring...

... and What Were Its Powers?

It was part of Sauron's scheme to ensnare and enslave the users of all the rings of power and so control the Noldor of Middle-earth. Sauron planned for the domination of all of Middle-earth and he needed/wanted to control the Elves to complete this plan. This was the reason for the forging of the One Ring. Sauron went to Orodruin, Mount Doom, to forge the Ruling Ring, and by putting a large part of his own inherent power into the Ring he created a means by which he could enslave the users of the rings:

"And much of the strength and will of Sauron passed into that One Ring; for the power of the Elven-rings was very great, and that which should govern them must be a thing of surpassing potency; and Sauron forged it in the Mountain of Fire in the Land of Shadow. And while he wore the One Ring he could perceive all the things that were done by means of the lesser rings, and he could see and govern the very thoughts of those that wore them."
[The Silmarillion]

Sauron took quite a risk in placing a major portion of his own power into an item that could be taken from his control. This is exactly what happened at the end of the Second Age when the Last Alliance of Elves and Men defeated Sauron and Isildur cut the One Ring from Sauron's hand. Separated from his power, Sauron was vanquished and seemingly disappeared from Middle-earth. Tolkien's view on the use of power is revealed in another one of his Letters:

"The Ring of Sauron is only one of the various mythical treatments of the placing of one's life, or power, in some external object, which is thus exposed to capture or destruction with disastrous results to oneself. If I were to 'philosophise' this myth, or at least the Ring of Sauron, I should say it was a mythical way of representing the truth that potency (or perhaps rather potentiality) if it is to be exercised, and produce results, has to be externalised and so as it were passes, to a greater or less degree, out of one's direct control."

[The Letters of J.R.R. Tolkien #121)

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