In the investment universe, a token is the registration of an asset in digital format. However, this term is very broad. In this way, it can vary from a customer name registration, with no commercial value, to tokens that represent real estate investments.
It was the use of cryptography, and decentralized cryptocurrency networks, that drove this token market. In fact, almost everything can be transformed into a token, that is, to gain representation in digital format.
After all, what is the advantage of this new way to store and transfer ownership of assets? Let's see who benefits, how tokens are used today, and what trends are in the area.
What are tokens for?
The biggest advantage of the token is that it does not depend on a certain company or group to survive. You have probably accumulated points in credit card loyalty programs, correct? Although it will vary with each bank or issuer, it is usually not allowed to freely trade these points.
Likewise, the issuer may, at any time, cancel its points, or place limits for conversion into airline miles and other benefits. That is, the accumulated points can be yours, but you do not have full control of them.
Through the use of blockchains, computer networks that do not depend on the coordination of a central entity, these loyalty program points gain independence. In this way, the user has control over the digital asset, which can continue to exist regardless of the issuing company's existence.
Similarly, the token that represents a real asset, for example, a precatory bond, or a sum of gold, can be freely traded among its users, with no possibility of intervention by the issuer.
Take the opportunity to get to know the consortium and precatory tokens traded on the Bitcoin Market.
How it works?
First, it is necessary to understand how cryptocurrencies work. This special class of cryptography has its own network, where the information about balances and movements of users circulate.
In this way, each computer running the cryptocurrency software becomes part of a large independent network. This allows the tokens to be created taking advantage of this existing structure, without needing an own blockchain network.
In this sense, the tokens are a criptoativos class dependent on other criptomoedas . In this way, they enjoy the benefits of security, transparency, and flexibility in transfers.
More than 70% of the most well-known tokens exist within the Ethereum (ETH) network. This was due to the ease of programming contracts through standardization. In view of this, Ethereum's ERC-20 standard and Solidity programming language dominated the market.
What is the difference between token and cryptocurrency?
When the digital representation of good is stored in blockchain networks, these become known as cryptography. However, these tokens in the cryptographic format are dependent on other cryptocurrencies that already exist.
There are cases in which tokens have chosen to create their own blockchain when they are created as a token on the Ethereum network, they can choose to migrate and become an independent cryptocurrency.
In short, the token has all the benefits brought by programmable digital contracts ( smart contracts ). Therefore, it is able to perform complex tasks, but in a decentralized and transparent way.
Either way, both tokens and cryptocurrencies can be extremely demanded and valued, and eventually compete in some niches.
What is the benefit of tokenization?
Tokenizing an asset is transforming it into a digital format, through a process known as tokenization. This trend has accelerated over the past two years, and there are already real estate, automobiles, and even slices of companies trading in the form of tokens.
Proof of the success of this strategy is the intention of central banks and governments to tokenize their fiat currencies. This is already being tested in China, for example.
The holder of these tokens gains the transparency and autonomy conferred by the blockchain, this decentralized database. On the other side, we have the issuer, which benefits from the ability to divide the asset into smaller instalments, increasing its liquidity.
In this way, when tokenizing a property, a precatory title, or gold bars, it is possible to negotiate and move fractions of the asset, without the need for authorization from a central entity.
In short, this expands access to previously restricted markets, and facilitates the transfer and registration of ownership of this asset, due to the transparency and security of the blockchain.
Features that make tokens advantageous
Democratized access: it is possible to issue numerous tokens with low unit value, increasing the access to the investing public.
Transparency: blockchain technology allows precise control of which addresses on the network control each token; however, the issuer may require, if it so wishes, that this owner identifies himself when converting the token into the real asset.
Efficiency: blockchain technology eliminates a number of intermediaries, especially custodians and depositories; this reduces the final cost of the operation, and increases the return on the investor.
Security: the user himself can make the custody (custody) of these tokens, or, if he prefers, leave them under the custody of the custodian of his preference; there is no obligation to keep the assets in a specific entity.
What is the future of this market?
The success of cryptographic tokens started with stablecoins , cryptocurrencies paired with the dollar. There is currently around 19 billion USD equivalent circulating in this class of crypto.
Then there was the rise of gold-backed crypto, acting similarly to the dollar's stable coins. However, the biggest advance came from utility tokens (utilities), which represent access to a certain service or product.
In this way, utility tokens are not designed as a store of value or a means of payment. A recent example is a Chiliz token, traded on the Bitcoin Market, on the international platform Socios.com for interacting with sports fans.
Finally, we are witnessing the birth of the security tokens industry, the securities tokens. In the latter case, crypto-assets represent company shares, derivatives, or other regulated instruments.
In short, it is undeniable that this industry is booming. Thus, even if they do not compete directly with cryptocurrencies, tokens can be very useful, and consequently, valuable.
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