Token? What Is It?
Bitcoins, Ethereum, cryptocurrencies, and blockchain, are the hyped words among fintech.
Within cryptocurrencies and blockchain terms you already heard the word “token.” But what is it?
Tokens are blockchain-based digital assets working as a digital coin. The difference between a token and a cryptocurrency stands for its application. Tokens are used, usually, within a private network, to generate traffic among its users, (purchases and rewards for stakeholders, for example). The owners of that token will decide, where and how this token can be applied. Every token has several layers inside. Most of them, created through Ethereum internal business digital asset strategy (ERC20), can be used in various platforms aside from one specific token environment.
Let’s try to explain this is some other way, having in mind these three words: blockchain, Protocol, and Token.
The blockchain technology is a little bit complex. Known as “the” new technology, blockchain acts like a nest. From it, the technology can be communicated in several ways using the “protocol,” which is a way of communication within the blockchain. The protocol could be ‘Ethereum,’ ‘Bitcoin,’ for example. The protocol will define exactly how the communication should be made. For instance, if the protocol is based on Ethereum, the “conversation” inside that specific blockchain should be executed by ERC20, the smart-contract technology inside ethereum blockchain.
In summary, the blockchain technology will lead us to a protocol that will define its coin (digital asset). For example, the blockchain based on Ethereum will lead us to a token (digital coin) moved by ERC20 digital technology, reassuring its implementation and use in the ethereum ecosystem. Therefore, the majority of tokens are created through ERC20.
Have you ever gambled with your friends without money? With beans for example? Or another type of fun “asset”? That’s a token. Applied into your ecosystem, the chosen token has value within your game, but it doesn’t work like real money in the real world.
What kind of tokens there are?
Security and Utility. Tokens are divided into these two categories.
Utility Token: These type of tokens are usually used by a company to promote a product or a service. Without offering any shares, utility tokens are working as an access key or a coupon for further application within its system. Defining its terms, the company will choose precisely how and where this token can be applied and used when the product or service will be entirely available (public).
Security Token: Unlike utility tokens, investors can expect a share or possessioning reward for investing in a company/product. With a profit mindset, security tokens are translated into in the form of dividends or revenue share.
See why we choose the Utility Token here!