What is a token?
A token is a unit of value issued by a person or by a private company . To understand it better, it is like a currency but with more benefits, since it can represent any fungible and negotiable asset. What happens is that, unlike coins, they do not have legal tender. It will be better understood with an example: the chips of a casino. Outside the casino they are worth absolutely nothing, you cannot buy or pay anything with them, but inside the casino they do have value and can finally be exchanged for legal money.
There are also the cryptographic digital tokens that have in common with the classic tokens the fact that they do not have legal tender either, but they differ in that they work with blockchain technology and this provides some substantial advantages, Token swap platform development such as controlling counterfeits.
How do tokens work?
The correct functioning of the tokens depends on two elements:
Blockchain : they need a platform to be used and that is where the blockchains originated for the various cryptocurrencies come into play.
Smart contract : it is like a contract in which everything that can and cannot be done with the token is collected and other issues also appear, such as the fixed amount of the token, its issuance, etc.
token types
Once we have explained what tokens are, let's see the different types of tokens that we can find:
Utility token : allow access to future products or services offered by a private company. To understand it better, it is like investing in a company project at the same time that it benefits from our financing. Therefore, they allow their holder to have access to various services offered by a company, but they are characterized in that, in theory, they are not created as investments. Simplifying, they allow future access to the products or services offered by a company and are not created to be an investment, but to grant privileges and advantages.
Security token : they are related to conventional financial securities, such as futures and bonds.
Equity token : they work in a similar way to traditional shares and their value is associated with the success or failure of the company. They work in a similar way to buying shares of a company. Therefore, their future is closely linked to the success or not of the company that issues them. Thus, companies can issue shares and voting rights directly on a blockchain, thus improving liquidity and reducing transaction costs, such as fees charged by stock exchanges.
NFT : they refer to collectible assets and are unique, which can represent, for example, a sculpture. NFTs are a type of token that are contributing to the development of digital art, becoming a new way of investing in art or in digital assets such as GIFs and tweets. It will also have a boost in another field, specifically in that of digital identity, more than anything because the fact of being able to store identification data in a chain of blocks increases data security.
Difference between cryptocurrency and token
To say that cryptocurrencies, in short, are a kind of token modality. In principle, the token gives the right to enjoy a certain amount of goods or services created by the distributor of said goods or services.
Cryptocurrencies and tokens have similar characteristics, such as the fact that they are units of value, they do not have legal tender, they are issued by private individuals or companies, or they exist on a blockchain.
But they also have notable differences, since cryptocurrencies work on their own independent block chain and tokens are created on an existing blockchain . The meaning of what blockchain is is a bit more complex but, in this case, it is enough to know that between cryptocurrencies and tokens there is a small difference in the blockchain they use.
For their part, tokens are created to represent anything and although they can be used as a means of payment, their real purpose is to represent value.
Therefore, a token has more uses than cryptocurrencies, since they not only serve as a means of payment.
What are security tokens and what are they for?
It is a type of token that is linked to traditional financial securities and, therefore, becomes a type of investment and, for the company, a type of financing.
Security tokens offer the holder who acquires them a stake in the company that issued them, Token Swap Platform Development in a way that is similar to buying shares in a company.
They have several advantages:
- There is little bureaucracy in the whole process.
- The process is dynamic, agile and fast .
- Being digitized through blockchain , the times of operations are reduced .
- If the future of the company is favorable, they generate profits and benefits for their owners .
- They have a substantial reduction in issuance and transaction costs .
- Efficiency in transactions .
- Reduction of intermediaries.
They have the character of investments for legal purposes . These tokens are regulated in a more strict way, since in the United States it is regulated by the Securities and Exchange Commission (SEC). And it is regulated because it meets a series of requirements, such as:
- There must be a pecuniary investment (through money).
- There must be a real possibility (if all goes well) of earning money.
- Earnings must come from the work and activity of the company.
