What is a token? Token vs coin. Governance tokens. KYVE token
Token… Token… Token…. From article to article I use this term, still I haven’t explained it to you yet. I need to fix this horrible omission today! Thus, you will learn about tokens, tokens, explanation, types, functions etc. I want to emphasize governance tokens. As an example, I will describe the KYVE token and its functions.
Hi! My name is Val and I tell my readers about blockchain technology projects and fundamentals. The new article every Monday. I am Ph.D. and teaching assistant, crypto enthusiast and ambassador. I love your feedback, therefore: “Welcome”!
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Today, I’ve noticed that I hate the header “Introduction” in my articles lately, therefore here is “The meaning” :)
The meaning
Token is…
“a round metal or plastic disc that is used instead of money in some machines”
“something you give to someone or do for someone to express your feelings or intentions”
“a piece of paper that is given when you buy a particular product, which can be exchanged for something when you have collected enough of them” TOKEN | meaning in the Cambridge English Dictionary
Doesn’t it look like the first explanation of money, but not money in fact? It is for me. I used to think about a token as money. Nevertheless, tokens are not only about money, crypto and blockchain. Furthermore, it’s not the only “money” in this technology. However, the token has its own peculiarities, I do describe in the article.
What is crypto token
Crypto tokens are digital assets or representatives of assets.
It happens, words “token”, “cryptocurrency” and “crypto assets” are used with the same purpose. Nevertheless, when it is said “token”, it means that it does not have its own native blockchain. Thus, it uses some other chain instead.
Tokens are used to make it easy to create a new cryptocurrency, but not to build a new blockchain for this purpose. You probably can’t even imagine how much it simplifies crypto developers lives! To build new blockchain takes too much time, effort, resources, and knowledge. Without tokens, there would be much less progress in blockchain technology and usability. Luckily, tokens are here.
Tokens have a wide range of purposes, among them being “just money”. Moreover, they are rarely or practically never “just money”. They help to organize different types of interactions within native systems of their own. Still, they can be traded and held like any other digital money items (we won’t talk about NFTs today, I’ve described them here).
Token vs coin
There are several types of cryptocurrency in the blockchain industry. In fact, cryptocurrency stands for any digital money that use cryptography [source]. So, the types are [source]:
- Utility
- Exchange
- Payment
- Security
- Stablecoins
- DeFi tokens
- NFTs
- Asset-backed tokens
Too many, right? Have you thought of this much? I haven’t. Nevertheless, today I want to tell you about tokens.
“Crypto tokens are a type of cryptocurrency that represents an asset or specific use and reside on their own blockchain.” [Source]
If you still think tokens are similar to cryptocurrency and these terms can be used the same way — you are mistaken. Here I’ve found the perfect example for you. It explain it better:
“Bitcoin is a cryptocurrency, which has virtual tokens or coins that can be used to trade or make purchases.” [Source]
Tokens have a lot of purposes: to present an asset or currency in some exact ecosystem. [Source]
There is another point of view:
“A Blockchain can only have one native asset (coin), whereas it can have hundreds of tokens built on top of it. While ETH is the cryptocurrency native to the Ethereum Blockchain, there are many other different tokens that also utilize the Ethereum Blockchain. Crypto tokens built on top of Ethereum include MATIC, LINK, andUSDT, among others,” says Vikram Subburaj, CEO, Giottus Crypto Platform.
In other words, tokens are brought to networks by various add-ons, as blockchain applications, for example. They are not natively developed, but use native coins of these chains.
Token types
Depending on functionality, tokens can be divided into various types. To be exact, I should mention that any token can suit several or one type.
Here they are: DeFi tokens, Governance tokens, Non-Fungible Tokens (NFTs), Security tokens.
DeFi tokens are produced by decentralized financial applications, whose main aim is to postpone various financial operations with decentralized benefits. They use tokens to support these operations. The tokens can also be traded or used as native crypto.
NFTs are non-fungible, so can’t be traded, as they are unique — one of a kind. These represent a unique digital or off-line asset.
Security tokens are used for reliable, secure ordinary operations without third parties, as, for example, brokers.
I want to talk about governance tokens in more detail below.
Nevertheless, you can already assume that the token can have all these features, even so it is not necessary and often useless, but there is a possibility.
Governance token
Governance token is the tool to organize decentralized governance of any organization or project. To explain its importance and functions, it’s better to touch on the decentralization subject a bit. So let’s start with it.
Decentralized organization of governance compared to ordinary has no centralized leadership. Everyone involved can take part in the decision-making process. Here is where tokens matter. Everything is held via the voting process. One token is usually — one vote. The vote is one of my favorite tools, as the results are implemented immediately. There are no tiring bureaucracy procedures. The tokens used are called governance tokens.
“It means the project became completely governed by its token holders without any substitute governance methods.” [Source]
Decentralized Autonomous Organizations (DAO), Decentralized Finance (DeFi), decentralized apps (DApps), all of them use governance tokens.
Nevertheless, governance tokens have its own pros and cons. Of course, as it makes decentralized organization and project management possible, I would name all decentralization benefits as its own.
Advantages and disadvantages are here:
+Benefits of decentralization;
+Community building;
-Whales problem;
-Unprofessional decisions.
The side effect of token’s main function is gathering people into active communities with mutual interests. Token holders are people, who care about the project or organization, that is why they are usually eager to become a good team. On the other hand, typically there are big whales that hold huge amounts of tokens, and so, decide how the project will develop. Nevertheless, token holders often lack knowledge and can vote for wrong decisions.
KYVE token
KYVE Network is one of the most promising projects of this year. As practically any project, of course, it has its own token — $KYVE.
Nevertheless, I want to start with the project itself, so you can understand different sides of token usage in practice.
The main purpose of the Network is to create limitless decentralized datalake [Source]. Decentralization is powered by uploaders and validators. These are the nodes that are divided into pools. Each pool needs to achieve a specific data stream.
As often happens, KYVE is DAO. All decisions are decentralized and made through voting.
Both processes described above are supported by $KYVE.
$KYVE holders can participate in voting and decide what pool to create, various project improvements and cooperations, etc. $KYVE holders also can bring their ideas for community assessment. [Source]
Another token function is to support and be the background of pool existence and functioning. Therefore, $KYVE allows users to get the data.
Moreover, staking of the token is a proof of work for validation nodes. As a result, staking amount is taken into account when rewarding node runners. The same is with delegation:
“Delegation is a form of staking which does not require you to run your own node.” [Source]
$KYVE | KYVE Network | Twitter
Nevertheless, the token is under construction, as the mainnet is being awaited.
Official KYVE Sources
Conclusion
Token is a key tool for functioning of any kind of decentralized project. Token is not only about money, but stands for governance, guarantees, security, transactions fulfilment, etc. Token is a comparably simple tool, as it uses existing technologies instead of creating new one.
As KYVE is concerned, among token functionality, you probably got to know that it offers lots of rewards to their supporters and community.
Resources:
TOKEN | meaning in the Cambridge English Dictionary
Token Functions — Glossary | Smith + Crown
What is cryptocurrency and how does it work?
