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People are only becoming familiar with the idea of digital money in the form of cryptocurrencies like bitcoin, where transactions are recorded on a secure distributed database called blockchain. And now comes a new concept: the token blockchain, which I followed as a blockchain researcher and teacher of courses on cryptocurrency and blockchain tokens.
In the last 18 months, digital developers have raised over $ 20 billion through a funding process called "initial coin supply", many of which use tokens. There are two common categories: "utility" token and "security" token.
Utility token
Utility tokens are essentially cryptocurrencies that are used for a specific purpose, for example the purchase of a particular good or service. For example, if you want to store information online, the most common way today is to become a customer of a hosting service like Google Drive, Dropbox or Amazon Web Services. It reserves a certain amount of storage space on those companies' servers and you pay with dollars, euros, yen or other national currencies.
but there is another way. The Filecoin network, for example, plans to provide similar cloud storage services without using buildings full of huge servers. Instead, its users will store their data, in an encrypted form, on the free hard disk space of other normal people. This requires a different form of tracking how much space a person uses and a new way of paying for all people whose hard drives are hosting data. Enter the utility token, in this case called Filecoin.
When a customer stores more data, the network will deduct the Filecoin tokens from its balance and send those tokens to each storage provider based on the amount of data they host. Customers can buy multiple tokens with any currency they want and hosts can exchange them with any currency they choose or keep them in storage for their data.
In addition to automating the use and payment of data, Filecoin tokens offer another advantage over normal currencies: they can be used in increments much smaller than cents, so prices can be very accurate.
The goal of Filecoin is a reliable and secure cloud storage system like commercial operations, but decentralized. The utility token is simply a tool that makes this approach possible.
Security token
A security token, sometimes called "token security" or "secure encryption", is more than one currency: it often represents the property of a real underlying asset. Like traditional stocks or bonds, they are regulated by the Securities and Exchange Commission in the United States. Regular titles are tracked on paper or, more likely these days, in a centralized database. Security tokens use a blockchain system – a decentralized database – to track who owns the resources.
The use of blockchain-based security tokens expands trading beyond the normal hours of bankers and stock exchange and can allow faster transactionalization. In addition, a software-based marketplace that enables smart contracts can automate various aspects of regulations and reports.
Security tokens facilitate access to multiple customer investments: just as a single E-Trade investment account can hold records for a variety of securities and bonds, a blockchain-based digital portfolio can do the same for a number of different security tokens, which represents equity, debt and even real estate.
Connection to cryptocurrencies
No type of token requires its own blockchain, as do the bitermines and cryptocurrencies of Ethereum. Instead, tokens can outsource their property accounting systems, linking them to pre-existing blockchain registries. This in effect creates a new sublingger, such as the ledger of the Ethereum network, only for that particular token. Each user who sends a tracked token registered to Ethereum pays a small transaction fee to the Ethereum network to validate the transaction.
Tokens are still at an early stage of development. I expect to see many innovations about how to use them for years to come.
