In this blog post we will be discussing the uses for different types of tokens. The main types will be Ethereum-based tokens because we view them as the best option currently.
With the exception of Ethereum, Bitcoin, Doge, and possibly EOS, we strongly advise caution against projects which have created their own blockchain network. Developing a functional blockchain is actually very simple, but securing a new blockchain is a nearly impossible task which only a select few mentioned previously seemed to have accomplished.
We are only covering Ethereum-based tokens in this blog for the following reasons.
Bitcoin : Best Blockchain, but not optimised for launching tokens on top of it.
Doge : Doge is a great test ground for new concepts and has the best community, but we are unsure for production releases.
Ripple : Isn’t remotely a Blockchain. False advertising.
EOS : Skeptical of its security, incentive structure, and lack of decentralisation.
Other : Other projects such as neo, tezos, and similar have yet to sufficiently prove themselves.
So now on to Ethereum. Why do we like tokens utilising the Ethereum network?
- Ethereum is a truly decentralised Blockchain network.
- They have more tokens than every other network combined and for good reason.
- They have the strongest developer community (outside of Doge).
- They are Constantly making great updates without sacrificing the values of open, decentralised systems.
- They have standards. Most commonly ERC20 and ERC721.
Ethereum ERC20 tokens are probably the most well known tokens. They have two common uses.
As a utility token. This is a fancy phrase for access tokens. Typically, utility tokens are used to access a product or feature in lieu of cash payments. To date, they are the most common in fundraising because they circumvent many regulations and are simply classified as pre-selling access in most circumstances. To fit into the classification of a utility token, the token cannot offer any forms of dividends or voting rights.
As a security token. This is either A) a fancy phrase for equity, which we will discuss in a future blog why we disagree with this trend, or B) something that represents an asset that generates financial returns, which we support. Security tokens can also be utility tokens, but the key difference is that they involve some form of dividends from a revenue sharing scheme and/or include voting rights. We believe that these types of tokens are not great for structuring companies, but are great for representing tokenised asset that generates revenue for stakeholders.
The other major Ethereum token standard is called ERC721. These tokens are non-fungible which means they cannot be broken down into fractional pieces like ERC20 can be. For example, if you tokenise a work of art with ERC721, 1 token would be created to represent 100% of the art and only 1 token for it would ever exist. If tokenised with ERC20, it could be broken up into hundreds, thousands, or even millions and billions of tiny pieces.
So what are ERC721 tokens optimal for?
Badges- A way to display titles within a community, game, or other group. They can also be used for status’s such as most-valuable-player and other types of notable accomplishments.
Coupons- A very simple way to issue Blockchain-based coupons and discounts such as percentage-off prices or buy 1 get 1 free rewards.
Rankings- A fantastic way to manage open-source communities and automate the organisation of permissions within a community as well as the roles and responsibilities.
Gamification- Cryptokitties and other fun models that offer fun experiences for their users.
Voting- This is a new concept which we are trying at MyBit, because we do not like using standard ERC20 tokens to vote, because the ERC-20 voting model often favours those with more money, who can afford more tokens. We will expand more on this topic in the near future. However, to get your hands on a MyBit Voting Asset, just contribute to any period of the MyBit Token Distribution and you will automatically receive it!
This blog was designed to be a very high-level overview to explain the basics of tokens. if you have any specific or more advanced questions please join our telegram community!
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