Custom Hooks

That's it. That's the entire idea behind custom hooks. So...
function useCount() {
	const [count, setCount] = useState(0)
	const increment = () => setCount((c) => c + 1)
	return { count, increment }
}

function Counter() {
	const { count, increment } = useCount()
	return <button onClick={increment}>{count}</button>
}
The useCount function is a custom hook. The use prefix is a convention to indicate that this function is a hook and has to follow all of the rules of hooks
Custom hooks are fantastic because they allow you to encapsulate complex logic and share that logic between components.
However, all abstraction has a cost, and that's true of custom hooks as well. In particular, if you have a utility function you want to share and people call that function within a useEffect or other hook which has a dependency array you suddenly need to start worrying about identity and referential equality.
For example, consider our increment function from the useCount hook. Let's pretend we're going to use it in a useEffect:
function Counter() {
	const { count, increment } = useCount()
	React.useEffect(() => {
		// set up a timer to increment the count every second or something...
		const id = setInterval(() => {
			increment()
		}, 1000)
		return () => clearInterval(id)
	}, [increment]) // <-- we need to include increment in the dependency list
	return <div>{count}</div>
}
The problem with this is that increment is a new function every render as we currently have it defined. So every re-render of Counter will cause the useEffect cleanup to be run clearing the interval and setting up a new one. This is not what we want. So we have to make sure that the increment function never changes. We can do that with the useCallback hook.
Before we get into useCallback, let's talk about memoization in general.

Memoization in general

Memoization: a performance optimization technique which eliminates the need to recompute a value for a given input by storing the original computation and returning that stored value when the same input is provided. Memoization is a form of caching. Here's a simple implementation of memoization:
const values = {}
function addOne(num: number) {
	if (values[num] === undefined) {
		values[num] = num + 1 // <-- here's the computation
	}
	return values[num]
}
One other aspect of memoization is value referential equality. For example:
const dog1 = new Dog('sam')
const dog2 = new Dog('sam')
console.log(dog1 === dog2) // false
Even though those two dogs have the same name, they are not the same. However, we can use memoization to get the same dog:
const dogs = {}
function getDog(name: string) {
	if (dogs[name] === undefined) {
		dogs[name] = new Dog(name)
	}
	return dogs[name]
}

const dog1 = getDog('sam')
const dog2 = getDog('sam')
console.log(dog1 === dog2) // true
You might have noticed that our memoization examples look very similar. Memoization is something you can implement as a generic abstraction:
function memoize<ArgType, ReturnValue>(cb: (arg: ArgType) => ReturnValue) {
	const cache: Record<ArgType, ReturnValue> = {}
	return function memoized(arg: ArgType) {
		if (cache[arg] === undefined) {
			cache[arg] = cb(arg)
		}
		return cache[arg]
	}
}

const addOne = memoize((num: number) => num + 1)
const getDog = memoize((name: string) => new Dog(name))
Our abstraction only supports one argument, if you want to make it work for any type/number of arguments, knock yourself out.

Memoization in React

Luckily, in React we don't have to implement a memoization abstraction. They made two for us! useMemo and useCallback. For more on this read: Memoization and React.
So, going back to our earlier example, here's how you solve the problem:
function useCount() {
	const [count, setCount] = useState(0)
	const increment = useCallback(() => setCount((c) => c + 1), [])
	return { count, increment }
}

function Counter() {
	const { count, increment } = useCount()
	useEffect(() => {
		const id = setInterval(increment, 1000)
		return () => clearInterval(id)
	}, [increment])
	return <div>{count}</div>
}
What that does is we pass React a function and React gives that same function back to us... Sounds kinda useless right? Imagine:
// this is not how React actually implements this function. We're just imagining!
function useCallback(callback) {
	return callback
}
Uhhh... But there's a catch! On subsequent renders, if the elements in the dependency list are unchanged, instead of giving the same function back that we give to it, React will give us the same function it gave us last time. So imagine:
// this is not how React actually implements this function. We're just imagining!
let lastCallback
function useCallback(callback, deps) {
	if (depsChanged(deps)) {
		lastCallback = callback
		return callback
	} else {
		return lastCallback
	}
}
So while we still create a new function every render (to pass to useCallback), React only gives us the new one if the dependency list changes.
In this exercise, we're going to be using useCallback, but useCallback is just a shortcut to using useMemo for functions:
// the useMemo version:
const increment = useMemo(() => () => setCount((c) => c + 1), [])

// the useCallback version
const increment = useCallback(() => setCount((c) => c + 1), [])
One other thing to note is that useCallback and useMemo also have dependency array and it functions the same way as the dependency array in useEffect. If you don't include all the dependencies, you'll have bugs. And if the things you include in the dependency array are not stable, then it'll undo the stability of the memoization as well. This is how dependency arrays can spider out into everything you do which is one reason why it's handy to avoid abstracting early.
There's a strategy to help you avoid dependency arrays talked about in Myths about useEffect. Additionally, there's a pattern you can use to help reduce the issue (with its own set of trade-offs) which we'll explore in the React Patterns workshop.
🦉 Better understand memoization by diving deep on caching with my talk Caching for Cash.
🦉 A common question with this is: "Why don't we just wrap every function in useCallback?" You can read about this in my blog post When to useMemo and useCallback.
🦉 And if the concept of a "closure" is new or confusing to you, then give this a read. (Closures are one of the reasons it's important to keep dependency lists correct.)