Every
day we are finding, spotting and maybe even trading hundreds of
different tokens usually without knowing what their functions are,
structure etc. Today we would like to put an end to it and tell you what
the main types of tokens are and provide you with a kind of etymology
that you can always use when trying to evaluate or find any information
about a new token.
Hope you will enjoy it.
Let’s start with the basics
In
general, a token is an object that represents something else, such as
another object (either physical or virtual), or an abstract concept as,
for example, a gift is sometimes referred to as a token of the giver’s
esteem for the recipient.
In
a blockchain, a token perfectly fits the concept of a unit of value
that is issued by a specific community or private entity or whatever it
can be. Although tokens bear many similarities with bitcoins (they have a
value attached to them which is accepted by a community and are
blockchain-based), they serve a much broader purpose. Thus, Tokens are
more than a currency because they can be used in a broader range of
applications.
The
author of ‘The business blockchain’, William Mougaya describes token as
a unit of value that an organization creates to self-govern its
business model, and empower its users to interact with its products,
while facilitating the distribution and sharing of rewards and benefits
to all of its stakeholders.”
Types of tokens
Right
now, there are many different etymologies of types of tokens and we
decided to provide you with the most logical and correct ones.
The first thing that comes to mind when considering the types of tokens is to range them according to their functions:
Utility tokens
Type
of tokens that give holders the access to specific services provided by
the project. Also, utility tokens can be used as a type of discount or
premium access to the goods and services of the project. It is
considered to be the most advanced level of tokens as it empowers
companies and users to create and build totally new business models and
opportunities.
Security token
This
category of tokens represents assets such as participation in real
physical underlyings, companies, or earnings streams, or an entitlement
to dividends or interest payments. In terms of their economic function,
the tokens are analogous to equities or derivatives and mostly carry
only financial function.
Currency token
The
tokens of this category have no further functions in a specific
project. The main purpose is to be items of inherent value (similar, for
instance, to cash or gold) that are designed to enable purchases,
sales, and other financial transactions. They tend to be an alternative
to fiat currencies like dollars or euros but without being backed by
government central bank.
Bond token
It
is very unusual category of tokens and is very rare. Bond tokens carry a
debt obligation functions They order a holder a specific amount of
income in future for taking his funds now. In finance, such instruments
are used to attract debt capital and is used by most of public companies
and governments.
Another idea is to range tokens in accordance to their nature:
Fungible tokens
Are
essentially interchangeable for one another and are most often compared
to dollar bills. The perfect example of tokens of this type are
Bitcoin, Litecoin and most of other cryptocurrencies. The main concept
here is that every token in a circulation is similar to another one and
bear the same functionality and value. Fungible tokens are usually used
for regular transactions and standardized exchanges of value.
Non-fungible tokens (NFTs)
Means
that each one token in a circulation is unique. The perfect real-world
example here is plane or concert ticket, password or key. The concept of
NFTs is much more interesting as they can essentially represent
anything in the world. These can be broken up into two primary
categories: digitally native and digital representations. They either
exist on their own for their own sake or are tied to another object
(whether physical or digital).
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