For those new to cryptocurrency, it can be tempting to oversimplify digital assets. It’s easy to think of all cryptocurrencies as digital cash for facilitating transactions between people. However, that’s not the case. The reality is much more complex.
Underneath the hood in the
cryptocurrency ecosystem, there are many different types of coins and tokens.
Sure, some do function as digital currencies for making payments. However,
there are entire classes of tokens that have other uses, like paying for
specific services, voting on proposals, acquiring equity in a company, or even
proving identity.
Each of
these use cases leads to very different outcomes for the value, usefulness, and
overall economics of a given token. If you’re an investor, you must understand
the distinctions between token types to make better judgments about valuation.
If you’re considering launching an ICO, you’ll want to carefully consider your
options for token types to make sure you select the right kind for your
application. Furthermore, exchange operators and other market-makers need to
understand the implications that various token types have on trading and
transaction volume and prepare to support various types of currencies accordingly.
1 Token 101
2 Fungible Token
3 Non-Fungible
4 Different roles in a complex economy
No token
type is better than another. In fact, we need all these different token types
(and possibly more) in the future economy. Blockchain excels as a way to share
and secure data at the same time. Everyone has access to the shared ledger, but
making changes is only possible if you have the right keys. Such a hybrid
between security and access opens many doors for new industries and
technologies while also making current systems more efficient. Far from being
just a means of payment, tokens are the critical data structure that could
underpin every aspect of future society.
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