Cryptocurrencies are digital currencies fabricated using cryptography for safer and faster transactions. Bitcoin, the premier cryptocurrency was launched in 2009, since then, thousands of cryptocurrencies have sprung up.
Coins and tokens are referred to as cryptocurrencies, yet a more significant percentage of the coin does not serve as a medium of exchange.
Generally, cryptocurrencies are categorized into two:
• Alternative coins and;
Alternative coins, also known as altcoins or just coins, are other coins except for Bitcoin. Most altcoins were created using Bitcoin’s open-source code with some minor changes in the code. Ripple and Litecoin are examples of altcoins.
Tokens are exchangeable and redeemable entity frequently established on a blockchain.
Tokens could be commodities or loyalty depending on the creator of the token. For example, a shoe startup token can be equivalent to a shoe or monthly fee at a tech hub. The value of a token is not dependent on mining or any other market fluctuations. It is not compulsory to use Blockchain before creating a token.
We have established that a token is not a coin. However, its transactions, values are also regulated. A platform is used for such, the most popular platform being Etherium.
How does it work?
Creation of tokens: A company comes up with the fundamental rules and regulations, which are distinctive conditions, the amount of the token and its corresponding value. As soon as the fulfilment of the requirements, the platform will perform the legal duty for all the transactions that will place, ensuring that all the conditions are fulfilled.
Purchase of tokens: the process of procuring a coke is similar to getting a bar of chocolate from the vending machine. You get to the device, insert your coin, and push the “chocolate” button. The machine verifies if there is still “chocolate” in stock and if you are qualified to purchase it. Once you meet these requirements, you get your chocolate (in this case your token).
Token transaction: anyone who wants to buy and sell tokens must have a token wallet developed or certified by the platform that issues the token. Be reminded that a digital attorney enabled by a smart contract, will mandate you to play by the rules. It is worthy to note that the activities of your wallet are continuously documented.
You are wondering if this is free. I am sorry to inform you that you need to pay. The processing fee of your transactions are called “gas”, and you are required to pay. The “gas” fee is flexible; it varies depending on the number of transactions to be executed.
Different Types of Tokens
Different types of tokens exist. We will be examining the widespread ones.
Utility tokens are created to offer investors an entity apart from any means of payment. In general, the token is a means to access specific products or services. For instance, a sizeable number of cryptocurrency trading platforms issued their tokens to their clients to subsidize trading fees.
Let us create an analogy here. Assume companies are resorts, and with utility tokens, you can have access to the various services they offer. Before the launch of a new resort, you have the opportunity of buying as many tokens as possible. The moment the resort becomes popular, its token value skyrockets.
This is the underlying logic behind offering and purchasing tokens. You get a token at the resort. You get a cryptocurrency token via Initial Coin offering at a low price before it is launched.
Majority of the tokens built on Blockchain (for example, Ethereum) token are principally utility tokens. Digital token Blockchain is used internally on a platform.
Investment tokens, also known as asset tokens, are arguably the most complex tokens to categorize. Unavoidably, financial regulatory bodies see investment tokens as securities. Asset tokens pledge an ROI (Return on Investment). These tokens are circulated by the platform or the organization that built it.
The most popular example is DAO, an organization with the aim of proffer a decentralized blockchain business for commercial and non-commercial organizations. DAO was crowdfunded with the sale of their tokens with a promise of reinvesting the profits made. Reinvesting to make more profits was what made SEC categorize DAO cryptocurrency digital token as an investment token retrospectively.
Currency token is a first blockchain-based token. A token can only be said to be a currency if the purpose of its creation is to serve as a source of payment for services and goods foreign to the platform that created the token.
For instance, Bitcoin is said to be a currency because it was created to replace government-issued money. In this regard, people with Bitcoin can buy goods and services from merchants that accept Bitcoin.
Advantages of Digital Cryptocurrency Token
• It saves time, energy, and resources associated with creating a new cryptocurrency afresh via Blockchain. Resources, time, and technical expertise are the things most startups lack. This implies that a digital token is suitable for startups.
• Building your token using Ethereum does not only save time, but it also gives investors assurance of their investment. Ethereum is popular amidst most investors, and it will attract many investments to your business.
• Digital tokens offer people with access. They are facilitated by the internet and transfer of data, which means anybody with access to the internet can access the portals of the tokens and carry out transactions from anywhere in the world.
• Security: tokens are safe, especially those that make use of public Blockchain.
Between 2017 and 2018, a lot of ICOs came into the scene with their own tokens, and for different reasons. The presence of the new tokens was a contributory factor to the change in price of some popular cryptocurrencies, it also paved the way for Ethereum to become a very popular platform for the development of decentralized applications as well as the creation of tokens.
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