So TOKENS huh!? Isn't it the same as cryptocurrency? I mean we use them interchangeably, right??
NO HON! : |
Cryptocurrency is specifically a digital currency that flows along the Blockchain network. It is just used as fiat currency in exchange for goods and services. On the other hand, a token can be anything. YES!! Anything!
A bit unclear right? Lets dive deeper...
Tokens are digital assets that can represent any kind of property or ownership or service. It basically defines a set of rules of a smart contract. Each token is deployed on the Blockchain and has its own unique address. It can be transacted through the nodes just like a cryptocurrency. The main difference between a token and a crypto is that token holds a property that is used to represent anything. Tokens possess much more functionality that cryptocurrencies. While, crypto is only used in finance, tokens extend there reach over economics, service sectors and more.
A token is a tradable asset that resides on its own on the Blockchain network and often has nothing to do with cryptocurrencies. Bitcoin is a cryptocurrency that is only used in transactions just like a normal coin, but Ether has far more use cases like in decentralized applications.
There are different types of tokens in Blockchain technology. We will learn about some of them briefly.
Utility Tokens:
These tokens serve a purpose and therefore used to render a particular service through these tokens. Different platforms create utility tokens for their services and sell them to public. People can then utilize these tokens to get the service done.
Utility tokens are usually platform specific. Organizations create tokens for their platform and sell them there itself through ICO (Initial Coin Offerings). At the time of ICO, tokens are cheap as compared to the market price and are more likely to be bought. After the organization is ready the tokens can be exchanged for the platform service.
Security Tokens:
Also known as equity tokens, these are quite similar to traditional securities. They represent a stock or a share of a company that are sold out after the ICO ends. They possess some rights of the company and trading rules. They are condemned by federal laws.
The main difference between security tokens and utility tokens is that security tokens are limited and their price vary with the profit or loss of the company. Security tokens can also be accessed outside the platform on which they are developed.
Reward Tokens:
Reward tokens are special type of tokens that hold performance or reputation of an individual. Unlike standard tokens, they may not have real value. These tokens are usually given as rewards to the users or service providers by the platform based on their performance and activity.
Reward tokens are a form of appreciation by the platform and can be used to redeem offers provided by the platform. These are collected by the platform only and are generally non-tradable. For example, if a clothing company gives a token each time an order is placed above 1000Rs and on collecting 100 tokens you can redeem some discounts on items.
Asset Tokens:
Asset tokens possess the value of a real life asset for example, gold, real estate or bonds, properties, vehicles, etc. These are transferable on the network and hold a global identity, i.e., it doesn't belong to some specific platform. They ease the method of transferring such assets and removes that hectic traditional process.
NFTs are a great and trending example of asset tokens. These are non-fungible tokens, i.e., an NFT cannot be traded for another NFT. They hold a unique global value. Any piece of artistry, GIFs, tweets, or anything that cannot have a copy of itself and possess a unique property can form an NFT.
We will study more about it in further posts.
Currency Tokens:
Currency Tokens are just like the regular cryptocurrencies like Bitcoin, except, that they can be utilized along with Dapps. They hold a value of their own and can also be traded for other cryptocurrencies. They exist independently on the network and are generally not associated with a platform but network. For example, there are a lot of tokens that have been over Ethereum network. They are tradable just like the standard cryptocurrencies. Currency tokens represent a digital currency with some additional functionality of interaction with decentralized applications.
So, in conclusion, Blockchain is much more than just a payment platform ledger. This article was aimed at broadening the thinking of the readers about this technology so that various other use cases of Blockchain could be inferred.
That's it for today. Keep learning Blockchain and STAY TUNED!!
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