Advantages of tokens

Primarily, the need for tokens arise from the need or belief that a decentralised system is more beneficial to all the stakeholders than a centralised system. A token’s primary role is a reward to enable the decentralisation. If a business can be decentralise, the tokenization lets:

• create economic incentives that promote the use of the business

• distribute the functions of business increasing the reliability of the project

While tokens help the business, tokens being trade-able in nature thus enable:

Liquidity

• Speed up transactions.

• Access to the markets 24/7/365

• Access to a pool of borderless investors

• Fractionalisation: enable micro-ownership scenarios

This leads to higher level of efficiency and transparency.

When to tokenise?

Don’t tokenise for the sake of it. Answer the following “easy” questions :

• Can and what are the key activities of the business that need to be decentralised, at least partially?

• Will tokenisation lead to higher adoption and market size?

• Is there a need to achieve consensus about a global state between different entities?

• Do these entities need economic incentive for collaboration?

• In some cases: are there stringent requirement around anonymity and privacy?

Attributes of token

• Substrate: the decentralized platform that hosts the token (eg Bitcoin, Ethereum)

• System: management system of the token inside the substrate (eg ERC20, ERC721) which determine:

  • fungibility: possibility of exchanging parity of volume at the same price

  • transferability: ability to transfer tokens from one address to another without authorization

• role: the functional role of the token:

  • passive token: represents a value - currency (Bitcoin), a utility (Ethereum) or a security

  • active token: activate features such as access to a smart property or specific service features

• payload: associated with an external physical or digital asset, eg fiat currency, precious metals etc

• supply: limited or unlimited, determined by the monetary policy of the token

• divisibility: particularly important that it is high for limited supply tokens

• source: ie the availability of the smart contract source code (open or closed) that regulates the token

Token path

• straight line: the token is created, assigned to the recipient, used and destroyed

• chip model: it is used with an exchange service for conversion to other tokens / fiat and vice versa

• circular: it is used as a currency

Types of tokens

Seems easy but is a research question really.

Refer to the images below and go to the links for more detailed understanding.

Open

source: https://levelup.gitconnected.com/the-7-types-of-cryptocurrencies-you-must-know-3b26b2ce0eb8

Open