The cryptocurrency ecosystem offers extensive opportunities for the financial sector. However, there is still a lot of confusion about the different elements involved. Jason Simon, an expert in cryptocurrency and FinTech, provides an explanation of one facet, the differences between cryptocurrency coins and tokens.
Tokens are created using another person’s blockchain. You don’t need to create the blockchains right. Instead, the full code will explain how it should be validated. It is easy to create the token, and it runs on that particular blockchain.
Ethereum is a good example. Explains Simon, “Ethereum’s own blockchain stores value and validates transactions. The Ethereum team has been improving the system, updating its functionality, and fixing vulnerabilities in Ethereum tokens, an ER, or C20 tokens. It uses the Ethereum blockchain’s capabilities as its backbone.”
Basic Attention Token (BAT), an ERC20 token, was created on the Ethereum network. Although it wasn’t large enough to build their own mainframe, the team wanted to create a system that users could reward creators they follow in a straightforward manner, without getting too involved. The Brave browser, a web browser that replaces advertisements on websites with Brave tokens, is a product the BAT team can concentrate on.
While they were focusing on their product, the Brave team could count on the Ethereum Network for safety and stability. If their project grows quickly enough, developers can also migrate from a token into a coin. Crypto.com has recently launched its own mainnet. This is a fancy way to say they have launched their own coin. This allows them to validate their transactions.
To categorize the purpose, there are several types of tokens. “Platform tokens were created to support decentralized applications on the blockchain,” explains Simon. “Uni Swap, for example, is a decentralized platform that allows users to trade Ethereum tokens for other Ethereum tokens.”
The UNI Swap token is its token. This token is distributed to investors on their platform. It has the promise of token holders being able to vote on future changes and possibly even earning some of the profits from trades.
Security tokens are next. Security tokens can be used to signify ownership of an asset. Imagine that you wanted to purchase gold but didn’t want to actually own it. A token could be created that tracks the gold price. Instead of owning gold, you could have a representation. This would theoretically be safer since it is easier to hack into Ethereum tokens than to break into someone’s home. The tricky part is that the asset should be real.
Next, there are transactional tokens. These tokens are used to quickly and easily transfer money. The coin X Die is currently pegged at the US dollar, making it easy to pay for goods or services. It can be used in the same way as cash. It has very low expenses. The transaction fee currently stands at $0.000021.
Utility tokens are another type. These tokens have a value tied to their ownership. An example of an Ethereum token is the basic attention token. It can be used to advertise via brave browser. Utility tokens, in other words, can do something. Security tokens aren’t useful; you can just buy them and keep them. A utility token, however, can be used to commercially intend.
The last type are governance tokens. Token holders can vote on certain items with governance tokens. Uni Swap, for example, could be a governance token on a future version of UNI Swap. These give holders the right to vote on any matter the collective group puts forward.