Crypto Academy Season 3 Week 8 - Beginner's Course | Understanding Tokens

Hello Guys! I'm very grateful to be able to partake in this lecture. I hope you enjoy my homework post.

The ideology behind the Token concept is a very interesting one. Many crypto enthusiasts and users have been found to mistake coins for tokens and vice versa. However, it's quite simple. Tokens can be described as another dimension to cryptocurrencies that are designed specifically for a particular purpose in the ecosystem it was made for. They are created and given out during an Initial Coin Offering (ICO). Even though they have value and can be traded, they are mainly used to aid transactions and represent assets or utilities. One thing that stands out for Tokens is that they are created on existing blockchains and hence, do not have their own blockchains. An ideal example of a Token is the "Just Token" that exists on the TRON Blockchain and the LINK Token that exists on the Ethereum Blockchain.

Tokens serve a lot of purposes and their purposes vary from ecosystem to ecosystem. However, Tokens are mainly used in Decentralized Apps (DApps) depending on what the DApp entails including decentralized finance (DeFi) mechanisms, accessing platform-specific services, and even playing games.
There are a lot of Tokens in the system but some of the few Tokens are;

Tokens and Coins are two things that are alike but are very different. The only similarity a token and a coin can have is the fact that they are both digital assets and they may be on the same blockchain. One of the things that creates the Tokens and Coins confusion, is the fact that users are not really educated on the difference between them and also, websites and other media don't explicitly differentiate them from each other. The Token and Coin system can be likened to the Biological Mutualism Concept, where an organism exists from and on another organism; where they both benefit from each other. The differences between Tokens and Coins are;

• Tokens cannot be mined once they are created but Coins are mined day in and day out. In fact, Mining is the sole way Coins can be introduced to the circulation, unlike Tokens that cannot be mined because they are pre-mined and can only be issued by a central authority(The developers).

• Tokens are built on existing Blockchains but Coins are the native coins of their blockchains. Tokens are dependent assets in the Cryptocurrency world; they are built to perform certain functions and utilities on a particular blockchain, unlike Coins that are independent assets and exist on their own.

• Tokens are easy to design, create and little programming knowledge is needed however, Coins are comparatively difficult to create. Before an individual would be able to create a Coin, there would be a need to have quite a dense amount of knowledge in Programming.

• The value of Tokens is affected by the community and projects it was made for but because Coins are standalone, their value or price could be equivalent to that of Fiat Currencies.

Utility Tokens are tokens that give users access to certain products and services to perform actions within a DApp. They can also be referred to as Application Tokens and they function as coupons. Utility Tokens are given up by developers to support their projects through Initial Coin Offerings (ICOs). An ICO simply refers to the sale that seeks to raise funds for the project that is being embarked upon. Utility Tokens are usually issued when developing a new cryptocurrency. Companies use Utility Tokens to raise interest in their products.

The Utility Tokens can be likened to the system of mobile games currently, where to upgrade your character in the game, you need to pay in coins. Some DAppTokens such as BCUG actually use this ideology in their game.

Security Tokens are the digital version of bonds, shares and stocks on the blockchain. Initial Coin Offerings mainly offer Security Tokens. Basically, they are a sort of digital representation for contracts of an asset that already has value. Holders of Security Tokens are given the right to make decisions and also have the right to the dividends of the company that the token is titled to. This category of tokens pays its holders dividends in the form of new coins each time the company makes a profit. These tokens give the holder shares or ownership in the company. Security Tokens come in different forms such as Hardware Tokens, USB Tokens and Single Sign-On Service, just to mention a few.

There are three (3) types of Security Tokens, namely;

• Equity Backed
• Asset-Backed
• Debt Backed

Equity Tokens are a form of Security Token. The difference is that, it does not represent or denote traditional assets like cars or houses, instead, it's linked to debts and or the stock of a company. It also gives its holders a certain form of ownership over their investments. Holders are given ownership percentages of the total enterprise and a right to vote on the enterprise's future. It functions like the traditional stock asset that we know. Companies are however reluctant to venture into it because there is not much regulatory guidance with regards to what is legal and what isn't.

Some examples of Equity Tokens are;

• Neufund.
• The Elephant Private Equity Coin.
• Slice.
• Document.
• BFToken.
• The dao.

Non-Fungible Tokens (NFT) is basically data that is stored or accounted for in a blockchain, and that data represents a particular thing. It is a digital representation of a real-life asset. It could be a painting, a drawing or even real estate. It represents unique assets owned by a specific company or individual. NFTs creates a blockchain-based digital certificate for your asset. It carries the information of its owner and its seller making them distinct and easily verifiable. It usually exists on the Ethereum blockchain. NFTs prevents the copy and forgery of one's asset. It is like the blockchain-based version of a copyright or patent. CryptoPunks is a very good example of NFTs.

Tokens have value because they represent assets on the blockchain. For instance, in a situation where a user buys an NFT for an artwork, the token represents the value of the artwork.

• Tradable

The idea for the creation of USDT was thought of by a man named JR Willet in 2014. JR Willet is known in the world of cryptocurrencies as “The man who created ICO". In 2014 Willet worked in Mastercoin, a blockchain that served as a communications protocol working on Bitcoin.

• One of its greatest features is its stability.
• It has very low transactional charges.
• All transactions don't have limits, no matter the amount.
• It offers a safe space free of volatility, where users can transact easily without the fear of making losses.
• Even though it is a crypto asset, it is not decentralized and neither is it anonymous. This is because the token is controlled by Tether and the fact that before you'll be able to create tokens, you'll have to make bank deposits and this takes away its anonymity.

The topic of Tokens is an interesting one. Tokens should not be limited to just fiat equivalents because they have proven that they are a little more than that. Tokens can represent a lot more such as artworks, physical assets, stocks and shares.
I will like to thank @reminiscence01 for such an educative and wonderful lecture.