In February 2018 the Omni Layer protocol has surpassed all other meta-layer projects on top of Bitcoin not only in terms of daily transaction volume, but also in terms of total transaction volume.
The Omni Layer protocol and similar meta-layer protocols, such as Counterparty, are used in production environments for several years, to create, manage and trade digital tokens.
While one common use case of Ethereum is the creation of “ICOs”, other projects are still trying to get on board. For example, CoinGeek recently announced a contest to add digital tokens to Bitcoin Cash.
But why is this useful? What are some common use cases of digital tokens?
1. Digital currencies
Digital currency tokens are a type of currency available in digital form, with similar properties as it’s physical counterpart, but with the benefits of the underlying cryptocurrency system, such as fast, non-reversible transactions without intermediate party, or borderless transfer of ownership.
One of the most well known tokens created as digital currency is TetherUS, also recognized as USDT, a token that represents US dollars. With over two billion USD worth in created units, TetherUS is one of the top five tokens by market capitalization as of Q1 2018.
Mostly all alt-coin exchanges offer trading against USDT, which is used by traders and users to park money, or to move funds between exchanges, without being exposed to the volatility of Bitcoin and other alt-coins.
2. Equity, utility tokens and ICOs
Initial coin offerings are used to fund projects and serve as mechanism to distribute equity to shareholders, or utility tokens to ICO participants.
Back in 2013 Mastercoin, which was later rebranded to Omni, was the first initial coin offering on top of the Bitcoin blockchain. Many other projects followed and the market exploded in 2017 with billions worth in digital currencies raised through this new innovative way of crowdfunding.
Equity tokens can represent ownership of an asset, such as debt or company stock, while utility tokens are not designed as investment, but to provide access to a product or service.
Utility tokens for example can be used for the usage of an API, or to pay for resources. Counterparty, another meta-layer protocol on top of Bitcoin, has a protocol built-in fee of 0.5 XCP for the creation of named digital tokens to discourage spam and to disincentive squatting of popular token names.
3. Digital objects
What would be the internet without cute kitties? It didn’t take long until someone created tokenized digital cats: CryptoKitties is a token based application that allows players to adopt, raise, an trade virtual cats.
Even before that, tokens were used to represent other digital objects, such as virtual game cards: A whole community has emerged around Rare Pepe trading card tokens, which are unforgeable and have a known fixed supply as well as an auditable flow of ownership due to the inherited properties of the underlying blockchain. Some special or very scarce Rare Pepe tokens were traded for several thousand USD worth.
Other applications of digital objects are vouchers and coupons, which may represent an entry ticket, an advertising slot, or discount coupons.
At least two projects, BLOCKv and vAtomic, are working on generalizing the concept of digital objects and to provide an accessible platform to create and manage tokenized objects.
4. Verifiable voting
Digital tokens can be used for verifiable and auditable voting.
Usually multiple tokens are created, say for example tokens with the label “VOTE-YES” and “VOTE-NO”, which are distributed to participants of the vote. To cast votes, vote tokens are then sent to a agreed upon destination and when the vote is considered as finished, the number of tokens of each type is counted.
Such a scheme was used by the project FoldingCoin for decision making.
5. Access tokens
Token-controlled access is a concept where tokens are used to determine the level of access to a system and abilities within it, based on the tokens a user holds in his or her wallet.
This can be used to restrict access to websites or member-only areas, such as streams, games, blogs, or forums. A prominent example of token-controlled access are the LetsTalkBitcoin.com token societies.
