What are tokens

SwapSpace
SwapSpace
Jul 8 · 4 min read

Token is a unit of value issued by a tech or crypto start-up, intended to be a piece in the ecosystem of their technology platform or project. Tokens are supported by blockchains. They only physically exist in the form of registry entries in said blockchain. Initially, most tokens were based on the ERC20
protocol by Etherium.

Tokens are different from Bitcoins and altcoins in that they are not mined by their owners nor primarily meant to be traded (although they may be traded on exchanges if the company that issued them becomes valuable enough in the eyes of the public), but to be sold for fiat or cryptocurrency in order to fund the start-up’s tech project.

Difference between tokens and cryptocurrencies.

The main difference between cryptocurrencies and tokens is its belonging to a certain project (ICO, Crypto Collectibles, etc.). The token can be a payment in a certain system based on the cryptocurrency network. But the point is the token cannot exist without cryptocurrency, cryptocurrency can.

Cryptocurrency is a part of the blockchain system, and the token is based in the blockchain. Tokens are built on a ready-made platform. Moreover, the failure of the parent blockchain will affect the circulation of tokens in the network and will probably severely undermine the work of the issuing project. Failure of tokens will not affect the operation of the blockchain.

Therefore, tokens functions are bound to its issuer. In contrast to cryptocurrencies, tokens are not mined, they are issued by the company during the ICO or token generation event (TGE). Tokens value and investment attractiveness are determined by the actions of the organization that issued them.

Types of tokens

There are several types of tokens. It depends on the purpose of the supply of tokens.

Equity tokens — is an analogue of a share in a project or company in which a token holder can receive a share of the profits.

Utility tokens — give a certain value or opportunity within their platform.

Asset-backed token is a token provided by a real commodity, for example, gold.

Platforms for issuing tokens

Ethereum

Ethereum was a clear leader in the segment of token issuance platforms. It uses a PoW algorithm called Et hash, which was developed by Vitalik Buterin, in fact, like the platform itself.

Waves

Waves the product of the Russian programmer Alexander Ivanov caught up with the leader a few months after the launch. The developers initially relied on the PoS-Protocol, and later in the advanced version — on the Leased PoS.

EOS

The platform offers a wide range of opportunities for business projects for fundraising. The latest blockchain platform EOS is based on the algorithm of asynchronous smart contracts. Due to the parallel execution of a large number of transactions, the system can carry out up to 100 thousand transactions per second.

It should be noted that these are not all networks on which tokens emission is possible. Even on the Bitcoin blockchain, it is possible to supply tokens using Omnilayer, the most famous is Tether (USDT).

Token standards in the Ethereum network

ERC-20

Soon after the launch of the Ethereum platform, it became clear that to simplify the interaction of cryptocurrency projects, they all need to use one type of smart contract. The first such type was the ERC-20. The most common application of tokens of the standard ERC-20 is the supplying of tokens during the course of carrying out ICO.

Examples of projects based on ERC-20:

1.iEx.ec is a cloud computing platform that aims to bring computers together in one giant network of computing power, and plans to lower entry thresholds for those wishing to access high-speed computing.

2.RCN is a network for p2p lending that uses blockchain and smart contracts for transparent transactions with the participation of the guarantor. The guarantor is a legal entity with access to local jurisdiction and fixed in the blockchain register of the borrower’s credit history, which evaluates the terms of the transaction and assumes part of the risk.

3.Wings is a platform for the creation of decentralized Autonomous organizations (DAO), which allows individuals and organizations to put forward a new proposal for the consideration of community members, as well as provides legal regulation tools for companies and individuals.

ERC-721

The main distinguishing feature of ERC-721 from the usual ERC-20 is the non-fungibility of tokens. This property determines the range of potential implementations of the standard. It is obvious that unique tokens are best suited for digitizing unique assets.

Examples of projects based on ERC-721

Certainly one of the most sensational projects created on Erc-721 is CryptoKitties. CryptoKitties is a collectible game where players collect, exchange, and breed unique digital kittens, each represented by an ERC-721 token

The Ethereum network has already created more than 100 thousand smart contracts describing new tokens, and it does not seem that this process has slowed down. Of course, most of the tokens will soon be unnecessary, but the rest will be able to bring a lot of new things.

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