What is a Token? What Does It Do?
Tokens are defined as transferable digital properties that are created in the form of a platform or application and allow you to take advantage of all aspects of the platform. Tokens, which are mostly known through the ICO/IEO process, can be produced in order to maintain the continuity of the platform and to improve its quality. A token can represent value, product, or service. If we are talking about a textile startup, the token could be a dress. If it’s a tech company, then the token could also be an annual license for the software service. One can even generate tokens for oneself and sell one’s hourly workforce for tokens. To sum it up, every value, product, or service can be converted into a token, which means that every product or service can be “tokenized.”
Token Types
What is Utility Token?
Some tokens can contain more than one type. For example, Sia and Digix tokens are traded as both “utility” and “equity” tokens. The token called Steemit is suitable for all three types as equity, credit and utility.
What is Equity Token?
ICOs created with this method, referred to as stock tokens, are similar to the public offering (IPO) system. The benefit provided by the investor in the public offering is the same as the benefit in the equity token system. This means that token holders receive dividends or fixed commissions. Securities tokens, on the other hand, are backed by real assets such as an equity, shares of a limited liability partnership company, or property. They are also subject to securities laws. It is stated that the security tokens will create a radical change in the representation of the company’s shares. In addition, there is intensive work on the use of securities tokens in the real estate sector.
What is Credit Token?
Tokens produced for credit purposes. Namely, investors lend to startups with tokens. it is an alternative way of valuing their money. For example, an investment is made and at the end of the period a certain percentage of return is obtained on top of this return.
What is the Difference Between Cryptocurrencies and Tokens?
If we talk about a very basic approach, if the token is a digital asset;
Cryptocurrencies are
a digital currency. The most important feature of the token that distinguishes it from crypto coins is that crypto coins have their own independent blockchain, while the Token is a crypto money built on an existing blockchain. Although there is no obligation to create a blockchain network to create tokens, a
blockchain
system is mandatory in cryptocurrencies. However, creating tokens on the blockchain network is usually the preferred method, and they are produced on the Ethereum network, which was developed for the purpose of generating smart contracts, but later began to offer cryptocurrency.
In short, cryptocurrencies correspond to a specific asset and are used in asset transfer. A token, on the other hand, can be thought of as a symbol of a created contract. That is, it is not possible to pay with tokens, they are used for a certain purpose within a certain structure. For example; When the token is considered as a theater ticket, it can only be used to go to the theater with this ticket and cannot be used for different types of payments. Tether, USD Coin, Dai are examples of tokens.
What is the Difference Between Coin and Token?
The coin is created using cryptographic techniques, stores value over time, and is basically the digital equivalent of money. The coins are based on the blockchain, which is a public and distributed digital ledger where all transactions can be seen. The data is stored in bulk and shared among the participants of the blockchain network. Blockchain guarantees transparency and prevents fraud. There are coins that run on the blockchain based on
Bitcoin’s
original protocol.
Tokens, on the other hand, are digital assets issued by the project that can be used as a payment method within the project ecosystem and can perform similar functions to coins. The main difference of tokens from coins is that they give the owner the right to participate in the network. Tokens can perform the functions of a digital asset, represent a company’s share, and provide access to many more functions.
Creating a token is easier than creating a coin because you don’t have to create a new code or change an existing code. You use a standard template that’s blockchain-based just like Ethereum and allows anyone to create tokens in just a few steps. Using a template to create tokens provides seamless interoperability so that users can store different types of tokens in a single wallet. Looking at the current data, there are many tokens on the Ethereum base.
While tokens can offer a company’s stake, they provide access to the product or service and perform many other functions. Cryptocurrencies are currencies that can be used to buy and sell things. Tokens can be purchased with crypto coins. While the token has a certain use in the ecosystem of the project, Cryptocurrencies work independently.