One of the terms of daily use in the crypttomundo is the token, an Anglicism that in Spanish we could translate as a record. And although in the environment of cryptoactive technology the tokens have definite characteristics, it is often confused with cryptocurrencies and even use both words indistinctly as synonyms. This inaccuracy comes from the fact that both words describe value units of a blockchain.
Although the concept of a token or chip has been popularized in the digital medium, its origin is found in the physical world. There are very old tokens, such as those used by the landowners to remunerate the peons for their work at the end of the 19th century. These tokens were coin-like pieces, exchangeable for merchandise and groceries in the hacendado's own stores, but they had no value outside the hacienda. Currently, the use of tokens or physical tokens persists in various contexts. Such is the case of casinos, where pieces are used that are assigned an economic value and can be exchanged for money.
As in the physical world, the tokens in a chain blocks function as means of exchange, however, they can also have other functionalities. To better understand these concepts, it is first necessary to be clear about what a cryptocurrency is and the features that differentiate it from a token.
CRIPTOMONEDAS
Usman W. Chohan (MBA, University of New South Wales, Canberra) explains that "a cryptocurrency in a digital asset that is built to function as a means of exchange". These exchanges are made through electronic transactions using encryption techniques with "cryptographic technology to ensure transactional flow". That is to say, as Burniske and White affirm in "Cryptoassets", in this case the cryptography works as "a mechanism that allows the parties to safely transmit information among themselves through insecure channels".
The concept of cryptocurrency, as we know it today, is linked to the creation of Bitcoin, which marks a milestone by being the first to apply a powerful cryptographic system on a platform that, as a public accounting book, registers and validates chronologically all transactions. This technology is known as cryptoactive technology or distributed accounting and its operation gives it very valuable characteristics, such as its decentralized nature and the immutability of the data recorded there.
The first blockchain was conceived by its creators as an open source system, which led to the emergence of various projects based on this protocol. Many developers created new platforms from the mother structure proposed in Bitcoin and even discovered new uses other than the creation of money, which allows them to generate a plurality of cryptocurrencies or altcoins, as well as tokens with various functionalities.
ALTERNATIVE CRIPTOMONEDS OR ALTCOINS
The notion of alternative cryptocurrencies or Altcoins (in English), is used to refer to cryptocurrencies other than bitcoin or that have been created as an alternative to the original protocol. According to Wikipedia, "the term originated as a way of calling those cryptocurrencies that have copied the open source source code of bitcoin."
Coins-Alternatives-Cryptoactive-Bitcoin
Bitcoin and some of the most recognized altcoins. Source: Wit / stock.adobe.com
Two groups of altcoins can be differentiated. The first includes the cryptocurrencies that come from a Bitcoin fork. They were built using the original protocol and including certain variants in their code, to give rise to a new blockchain with its own cryptocurrency and different characteristics. An example of them are: Litecoin, Dogecoin, Namecoin, Auroracoin, among others.
A second group of altcoins have built their own blockchain and created a "native" cryptocurrency. Some also use a mining algorithm different from Bitcoin. In this group we find Ethereum, Omni, Nxt, Waves, Counterparty.
One of the fundamental attributions that differentiates Bitcoin and altcoins from other cryptoactives is that they operate on an independent block chain, where transactions are recorded with their own cryptocurrencies.
TOKENS
The BBVA page offers a token concept taken from the book The business blockchain, by author William Mougayar, where it is described as "a unit of value that an organization creates to govern its business model and empower its users to interact with its products, while facilitating the distribution and distribution of benefits among all its shareholders ".
A "token" (in Spanish tab), as we said at the beginning, is a unit of value. It is commonly issued by fintech ventures or related to the use of a blockchain, for which they can represent an asset or have a particular utility. It resembles cryptocurrencies in that their value is accepted by a community and in that it exists in a blockchain, but it has more uses than just a means of payment, since it can represent any fungible and negotiable asset.
The tokens are created on the protocol of an existing cryptocurrency in a given blockchain. In this sense, the emergence of smart contract technology, created by the developers of Ethereum, has led to the fact that many projects have chosen this network to found their tokens.
Most of the tokens are distributed through an Initial Currency Offer (ICO, for its acronym in English). It is a form of collective financing (crowdfunding), where the enterprises capture fiat money or cryptocurrencies for the development of their plan from the interested investors, who in return receive tokens that will have a utility or value within the project.
Bitcoin Wiki distinguishes two types of tokens: security and utility, which is the most commonly used classification.
TOKEN OF UTILITY
Utility tokens allow their owners to access different services offered by a platform based on a chain of blocks. They are used to boost the microeconomics of a blockchain ecosystem, thus facilitating the financing of projects. An example could be the BAT token (Basic Attention Token), which is used by the Brave platform and is based on the Ethereum blockchain under the standard ERC20 protocol.
SECURITY TOKEN
For Bitcoin Wiki, security tokens "are a type of tokens that give their owner the right to claim their investment interests. It may be the right to participate in a legal entity, to provide capital, obtain a profit, be a creditor or lender, etc. " Other rankings include reward tokens and securities-backed tokens.
In summary, the tokens are a fundamental element in the crypto-world. Although it is a concept that comes from the physical world, in the digital environment has taken special dynamism. The cryptocurrencies and the tokens have similarities in that both are a unit of value, accepted by a community and exist in a blockchain. The main difference between these cryptoactives is that the cryptocurrencies work in a chain of own and independent blocks, while the tokens are created on existing blockchain, also they are not mineable. A token has many more uses than just serving as a means of payment because it can represent all kinds of fungible and negotiable goods.