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Security, Equity, Utility, Non-Fungible. They are all tokens, but what are they used for?

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Avatar for MikeZillo
Written by   7
3 months ago

As per the title, there are various types of Tokens, each of which performs a certain function.

Before explaining what each category of token is used for, it's good to explain what is meant by Token.

The Token

The Token differs from cryptocurrency mainly because it does not have an own blockchain, but through smart-contracts, it originates on an existing blockchain.

I mentioned smart-contracts, so it immediately comes to mind that the main blockchain is that of Ethereum.

Another very important difference is that a token is used to represent (always digitally) rights.

These rights can be of ownership or access to a particular service.

Through ICOs (Initial Coin Offering) against a funding from a party, the company would provide a certain number of Tokens.

These tokens can be used to pay for services or to have access of various kinds, but only within the company that had provided them.

In order for the token to become a Coin, to all intents and purposes, it is necessary for the company to execute a Mainnet; that is, to establish its own blockchain, with all the necessary conditions.

The best example is for TRX. It was born as a ERC-20 token (Ethereum Blockchain resident) and then TRX created its own blockchain, moving all TRX from the ETH to the Tron Blockchain. This movement is called Mainnet Swap.

Security Token

The security token is a measure of a company's robustness; drawing a parallel with the real world, a security token could represent one of these 3 possibilities:

A share of the company

A security token against a government agency

A property rights

This type of token gives a certain security as they make the company that issues them responsible.

In addition, Security Tokens are regulated by the Local Financial Authority and after the strange affair of DAO, to protect companies and investors, the SEC had to draw up a regulation and a "register" where companies must register to certify their reliability and security.

What happened?

In 2016-2017, DAOs (Decentralized Autonomous Organization) was a suburban progress fund created on Ethereum.

As of April 2016, the ICO had raised about 150 million in Eth, with more than 10,000 investors under its belt.

Due to a flaw in the code, some hackers managed to get hold of about 60 million in Eth.

This left many investors with empty pockets!

Equity tokens

This type of token is part of the security tokens but works as a real traditional equity asset.

Holders of this type of token, can represent one of the following categories:

- Stocks

- Futures

- Option contracts

- Token Ownership

- Tokenized companies

It is no coincidence that Equity tokens have been named as "the stock of the 21st century"; in fact, if you use a token to identify a company's stock, the holder of this token can participate in the company's profits and voting rights.

In this case, it differs from a traditional stock in that it is registered on the blockchain, and therefore indelibly.

Being a type of security token, equity is also regulated by the country of issue and can be distributed through an IPO (Initial Public Offering).

Regarding the tokenization I refer you to this video for an in-depth study.

Utility token

This type of token is going into disuse as it has been used for all ICO (Initial Coin Offering) with bad consequences for investors in the case of unfeasible projects.

As everyone knows the ICO are called by the developer of the project that provides a certain number of tokens at a set price that can allow him, through the sale, to reach the two stages defined on the road map: The Soft cap (initial phase and activation of the implementation of the project) and the Hard cap (final phase of the project and activation of all stages of the project).

As usual, ICOs are executed on the Ethereum blockchain as it is technically more complete and easier to create tokens.

Among the examples of utility tokens, we can include BAT (Basic Attention Token) which is widely used by the decentralized browser Brave.

Non-Fungible Token (NFT)

The last token on the list is the non-fungible token, i.e., the "non-exchangeable" token.

Non-fungible token doesn't mean it can be sold; non-fungible token means it can't be replaced with another token: NFT is a unique token in the world.

That's why in this period they got all the limelight in the crypto scene, as they can perfectly reproduce what are the copyrights!

Speaking of which, I refer you to this video I created to clarify some basic points about this token.

If you have followed a little 'publications on youtube you will certainly have noticed a long list of tutorials that explain how to create a NFT, but given its importance is not so much to explain how to create it as why to create it and the importance of what it must contain in itself: something unique, unrepeatable and content.

I leave you with the video, enjoy and I look forward to your comments.

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Avatar for MikeZillo
Written by   7
3 months ago
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