What is Token Model? — Part 1
In this episode, we will talk about Token Model continuing from the last episode, [What is Digital Asset Model?]. Token Model is one of the most important models of the Protocon Network so we will divide the episode into two parts. We will discuss Token Model in detail after pointing out the terms and concepts needed to understand Token Model. Shall we first look at the definition and difference between ‘coin’ and ‘token’?
If you’re interested in cryptocurrency even a tiny bit, you’ve often encountered the words ‘coin’ and ‘token’. Currently, the word ‘coin’ and ‘token’ are frequently used in the same sense. However, just because they are used in a similar sense does not mean that there is no difference between them. According to Alexandria glossary,
1. Coin is a cryptocurrency that operates on its own blockchain and is independent of any other coins.
2. Token is a digital unit designed with utility in mind, providing access and use of a larger crypto economic system. It does not have a store of value on its own, but is made so that software can be developed around it.
In short, the difference between the two is whether or not they have their own mainnet. The concept of mainnet may be unfamiliar, so let’s look into it with an easier example.
Like the example from Blotter, Korean IT media, let us explain more about it by comparing coins to a country and token to a city.
Definition of Coin:
In order to be classified as a coin and to meet the requirements of a nation, you need to have a mainnet with your own structure and system. Coin has its own country, language, currency, law, etc.
Definition of Token:
Tokens are created under this country. Therefore, cities with different characteristics have systems and local currencies that are compatible to the country’s.
For tokens to be well compatible with coins, a standard-specification token is required. A representative example of this standard-specification token is Ethereum’s ERC-20. The ERC-20 is used to ensure compatibility of tokens that can be distributed over the network with standard token specifications set by the Ethereum blockchain network. According to EtherScan, the number of ERC-20 based token projects created using Ethereum’s smart contract has increased to 829 and ERC-20 token contracts to 350,000 in December 2020. The ERC-20 token standard is designed to facilitate the internal and external exchange of ERC-20 based tokens issued in each dApp via Uniswap and DEX. dApps tokens built on Ethereum smart contract can also be exchanged into Ethers (ETHs) for cash.
Now, Protocon Network also offers a feature called ‘Model’, similar to Ethereum’s Smart Contract.
1) We support token issuance and compatibility of various dApps through token standardization.
2) We provide a defined roadmap for developers. Just as Ethereum’s smart contract makes it easy to issue tokens without constructing a network from scratch, Protocon Network also provides guidelines for token generation by providing a ‘Mitum Currency Model’.
By providing a blueprint, projects based on Ethereum and Protocon Network become active allowing dApps to interact. As a result, the easy issuance of tokens on the platform acts as a good advantage for the establishment and development of the dApp ecosystem because more users and projects are introduced into the network.
Applying the example of countries and cities above, the more active the interaction between cities becomes, the more people visit each city. The synergy between the cities eventually leads to revitalization of the country and activates the ecosystem.
Finally, let’s take a look at the multi-sig function offered by Protocon Network and Ethereum.
According to Alexandria, Multi-sig is a shortened form of multi-signature. Multi-sig addresses provide an added layer of security by requiring more than one key to authorize a transaction.
If you want to find money in a multi-signature address, you need to have m signatures out of n private keys, and this is called the M-of-N transaction. For example, when User 1 creates a 2-of-3 signature wallet and User 1, 2, and 3 share the key, the transaction is executed only when at least two of User 1, 2, and 3 agree.
Multi-sig improves security by using multiple private keys to distribute decisions to execute transactions, unlike single-sig executed by one arbitrary signature.
The advantage is that even if a user loses a private key, there is another private key, just like the example above, so users can hedge the risk of completely losing the private key.
Throughout this episode, we’ve looked at the definitions of coin and token, their differences, and the stand specifications of token. In the next episode, we’re going to cover PEN Token Currency in more detail so please look forward to it!