What is a token? Cryptocurrency tokens can be considered as a unit for counting types of cryptocurrencies. In this article, we are going to examine the exact meaning of the token.
Cryptocurrency tokens are used briefly in China blockchain technology in the sense of a cryptocurrency unit and at the same time it is different from the concept of digital currency. The advent of blockchain technology in the last decade has introduced many words into the public discourse. Token is one of those words that is said and heard a lot these days. In this article, we intend to explore the current concept of tokens; So stay tuned to Wional.
To better understand the concept of a token, we, first of all, refer to its literal meaning so that a small point can be formed in our mental network and we can expand it based on today’s application. According to the definition of the Mariamubster Dictionary, the word Token in English dates back to before the twelfth century. In the literal sense, there are two different entries for this word in the Mariamubster dictionary, and the meaning of “sign, symbol, token, Ramzarz unit, etc.” is defined for it. By these interpretations, the token is not just a term specific to Chinese blockchain technology and has been used in a variety of fields, including art, entertainment and media, computers, and economics.
The most common use of tokens today before the Chinese block can be seen in casinos where people buy chips with different values for money to use in the casino environment instead of money and convert their chips into money again when leaving the casino. Another example is the tokens purchased at festivals and exhibitions, which are used for food purchases and welfare services. In addition, in most festivals, by purchasing special tokens, you can join various income groups and receive special services.
In the computer world, tokens have always existed. For example, an Access Token, which is actually an encrypted license to access a network. Alternatively, we can refer to the Token Has Expired message on websites that require a password to use the token as a Session ID. Thus, the token was before the Chinese block; But the word has now taken on a new meaning in the Chinese blockchain world.
What is a token?
Tokens in the Chinese blockchain ecosystem refer to any type of asset that can be exchanged and transmitted digitally between individuals. In other words, in the most basic case, it can be said that the token creates value that an organization has provided. If we connect the concept of cryptocurrencies to tokens, we must add that the value of tokens is accepted as a group and is also supported in the Chinese blockchain network.
Tokens are created on a blockchain and will have different categories and uses based on the characteristics defined for them. Today, the ethereum blockchain hosts most tokens with a variety of unique features. Therefore, another feature that should be considered in the definition of a token is the need for a dedicated blockchain, which is also the point of difference with Quinn. In fact, a coin can be considered a token; But not every token can necessarily be considered a coin, for example, every company can generate its own token in the ethereum blockchain network; But these tokens are not worth the coin and are only used for payment or use in decentralized applications (dApps). In the following, we will talk in detail about the difference between the two.
Startups and organizations create tokens as part of their business strategy to increase user engagement. Therefore, tokens are often used to raise initial capital, and their creation, distribution, sale, and circulation will be available to users in the ICO initial public offering (ICO) process. Of course, tokens may also appear in other maps and provide a platform for project development.
Types of tokens
Startups usually offer tokens to attract capital to be distributed among investors and thus raise the necessary capital to implement the project. These tokens can have specific properties and applications and can be used in different ways; But in general, according to the guidelines of FINMA, the Swiss financial regulator, tokens can be classified into four categories: 1.Security Token; 2. Utility Token; 3. Payment Token; 4. Equity Tokens. Keep in mind that a token can be categorized into several categories.
Security Token
Security Token are like stocks; Because its value comes from assets other than itself and they operate under the supervision of government agencies and follow the explained laws. Therefore, if the company fails to fulfill its promises and fails to implement the project, the legal authorities will pursue it. These tokens have a lot of safe margin in terms of investment.
Utility Token
Utility Token are not similar to buying stocks and participating in company profits and losses. The owner of functional tokens will benefit from the company’s services and products in proportion to the amount of tokens at his disposal in the future. In addition, another difference between these tokens and stock tokens is that they follow the rules that depend on their design. In fact, utility tokens can be exempt from the rules for securities tokens. For example, a functional token can be thought of as a pre-sale of products such as a video game or book or smartphone, which allows a Chinese blockchain startup to pre-sell its product or service and raise capital. In this way, in addition to attracting capital, future customers of startup products are identified.
Payment Token
Payment tokens have no function other than payment for products or services, and users can purchase it to buy products or services on the Internet. The value of these tokens does not fluctuate and they will often have the same value.
Equity Tokens
A set of tokens that represents the stock in the company offering the same token. This category is similar to a security token, except that it is valid only in the provider company and is not subject to specific rules. Therefore, a small number of companies tried to distribute stock tokens in order to raise capital; Because the public does not trust it that much.
Token applications
As mentioned, the most common use of securities is to raise capital and hold ICOs. Of course, companies providing application tokens prefer to use the term token generation event or token distribution event to describe this process.
Given that the token industry is still in its infancy, it is difficult to categorize potential token applications in the future; Eventually, however, the potential uses of the token will be determined.
As China’s blockchain technology matures and addresses government and regulatory issues and the level of access for investors and customers, innovative ways to use tokens can be expected.
Different methods of using tokens are:
- As a method of payment between the two parties to the contract who agreed to pay by token.
- Ownership of digital assets (property, products, stocks, etc.)
- Accounting for digital actions
- Reward participants in a network
- Ensure network security
- Create entries for additional services
- Provide an enhanced user experience
These are just some of the goal setting shareware that you can use. This list may be much more productive in the future.
Different types of tokens in the ethereum blockchain
There are different types of tokens that are distinguished based on different characteristics and functions. In fact, this classification is specific to the various tokens of the ethereum blockchain, and with the advent of ethereum and its growth, they gradually entered the field of emergence in the field of blockchain.
To host these tokens you need to find Chinese blocks such as Stellar, EOS, BNB, KMD or TRON to create a smart contract. Remember Atrium Blockchain is the core on which all these projects were developed. Since 2017, various standards have emerged on Atrium that allow token makers to offer specific functions and thus integrate them into other existing portfolios.
ERC20 Standard: Exchangeable tokens
The first standard to be established in the ethereum ecosystem is ERC20. The ERC20 token is managed by an intelligent contract that includes a list of minor processes; Including how to create new split units and eliminate them and transfer them to another portfolio.
Most tokens produced under this standard are used in ICO initialization processes and are tied to a specific project with their value proposition. Some of the tokens in this standard are in the category of popular cryptocurrencies. ERC20 tokens have different uses; From exchanges or assets in the project ecosystem to representations of Underlying Assets and Stablecoins whose value against monetary units will remain unchanged.
ERC721 Standard: Non-negotiable tokens
This standard is also on the Atrium platform and became famous with Cryptokitties. In fact, ERC721 tokens are based on ERC20 and have all the technical features with a fundamental difference. These non-tradable tokens represent digital assets with unique specifications, including serial numbers and names and personal characteristics or game objects.
The term crypto-collectible, meaning collectible cryptocurrencies, is widely used in the world of video games and real estate. ERC721 tokens will always be unique and will never be repeated or split into smaller sections; Therefore, the user can only own it all.
ERC1411 Standard: Security Token
This type of token has also been developed based on ERC20. As mentioned earlier, Security Token contain real assets and comply with current financial laws. This type of token is a modern form of traditional assets such as stocks, bonds, loans or deeds. Therefore, it follows the rules of traditional markets, and investment or exchange in these assets is limited to eligible individuals.
The distinguishing feature of the ERC1411 token compared to the ERC20 token is that such tokens, like the ERC20 token, are not freely transferable and are responsible for approving or rejecting the transfer of digital assets to verify exchanges in accordance with state laws governing the underlying assets. It is done digitally.
This licensing is managed through the smart contract that the assets generated; Therefore, digital assets comply with existing laws, and as a result, the securities quickly benefit from the legal framework. The existence of securities only indicates a simple technical revolution in the traditional form of stocks.
Token Difference With coin
In summary, the differences between a digital token and a digital coin are:
- Digital coins, such as bitcoins, exist on a native, dedicated blockchain network; But digital tokens can be created on existing china blocks.
- Digital coins have monetary value and are considered digital currency and can be used in payment processes; While tokens have a wide range of applications and may be used in a variety of ways.
- Creating coins is by no means easy and a complicated process must be completed; But making tokens will not be difficult for people who are familiar with programming.
- Coin distribution is done by extraction, which requires complex calculations; But the distribution of tokens is mostly done by holding ICO initial public offering events (ICOs).
The future of tokens
The term Tokenization of Assets refers to the process of creating a blockchain-based token for real assets, which is the same as creating tokens. Some experts and users think that in the future, a paper document will no longer be issued for the ownership of property or any other means, and instead, the ownership of individuals will be established through the process of creating tokens. This possibility has four main advantages: 1.Increase liquidity; 2. Increase transaction speed and reduce transaction fees; 3. More transparency in transactions; 4. More access.
The world of tokens is very vast right now and it is possible for it to continue to grow from any direction at any time; However, it is not far-fetched to assimilate assets in the future and eliminate many of the steps and paperwork of the office. It should also be noted that there is still no positive attitude towards gaining public confidence in this process.
Conclusion
With these interpretations, we find that although an encrypted token may be considered a digital asset, it is not correct to use it instead of a coin or digital currency; Because tokens have applications beyond cryptocurrencies and can represent a digital asset or a particular service or product. For example, since the beginning of this year, Non-Exchangeable Tokens (NFTs) have made their way into the world of digital artists and now allow them to create a special digital version of their artwork that is recognizable from other versions; Therefore, this way they will be able to sell the quality and original version as a token.
What do you think of Wironal users about existing tokens in the Chinese blockchain and their future?
