Decentralized Token Economy: The World that Blockchain Projects Aim to Build
By: Rajat Dangi
Tags: Technology, Cryptocurrency, Blockchain, Decentralization, Token Economy

iv. Tokens

Local currencies of the decentralized applications.

The tokens are like bloodstream, emitted out of the Dapps and circulated across the value chain to power it up.

It is quite difficult to define tokens under the regulatory terms and that is one of the reasons that many national governments are talking hard on them.

Tokens may fulfill functions of currency, asset, company share, a method of payment and many others, so they are quite difficult to define.

Tokens are broadly classified into two categories:

Security Tokens

Security tokens are defined to be company’s share. Security token allows users to own assets without taking possession. In Security Tokens the eminent promises buyer dividends and profits.

Utility Tokens

Utility Tokens represent access to company’s product or service. These are not designed as an investment but that doesn’t mean that they don’t bring any profit. In case more people demand a particular token, the prices will rise and holders can benefit from selling them on the exchanges.

With tokens we can imagine a world in which you own Google shares and use the same shares to pay for Google products.

This allows us to tokenize ownership or purchasing power in some type of system whether it is utility tokens or security. In a few years, there will be numerous tokens that we’ll be using for the exchange of value.

By removing middlemen and embedding both execution and legality within smart contract code, tokens will augment the ease of divisibility and lower the cost global transfers of ownership. As a result, our ability to trade real-world assets that are currently illiquid should increase by an order of magnitude. The ICO wave, which was a truly global affair, maybe a taste of what’s to come. In the not too distant future, we may live in a world where people from all corners of the globe trade everything from fractional ownership in Cristiano Ronaldo’s future earnings to a Manhattan office building. Any asset will be able to be placed on the spectrum of liquidity and made tradable.

— Tokenization of Everything — How Tokens will create a more liquid world.

Three ways to gain tokens:

Participating in ICO

ICO — acronym for ‘Initial Coin Offering’ is a new way to raise funds. The companies who launch ICO has a Blockchain project and the coins are the local currency to that Blockchain.

The division of tokens is made public before the fundraising. 20/80 percent of division between developers and buyers has become pretty standard.

20% Tokens reserved by developers for advisors, project funding, and developer incentives.

80% Tokens are reserved for ICO, a pre-sale of tokens before listing them on exchanges for public trading. This helps the tokens to gain certain value in the market. At the time of it’s listing on crypto exchanges, the real price discovery happens. The people who purchased those tokens in the ICO either sell them at a speculative price on exchanges against Bitcoin (or Ether and other currency) or hold them to pay for the services of that particular Blockchain.

Purchase from exchanges

Many choose to trade the tokens on exchanges only because the trusted projects make it to the reputed exchanges. You may purchase any crypto token in exchange for Bitcoin, Ether, USDT etc.

By contributing to the network/platform

The relatively complicated way in some cases to earn tokens is by contributing to the platform/network. In case of Bitcoin and Ethereum, the miners provide their compute power and receives a percentage on the total amount of transaction they verify.

The method of contribution varies from platform to platform. On the Steem Blockchain, people earn Steem Dollars for posting valuable content on the Steem based platforms in proportion to the upvotes they receive as well as for running the nodes to varify transactions. In case of the Solar coin, participants earn SLR coin for the amount of solar electricity they produce and contribute to the grid.

v. Open — Easy to participate

One of the problems we have had in tech is that there aren’t large monetary incentives to create and sustain open protocols. If they are open they cannot be easily monetized by traditional means. However, that is changing with the emergence of blockchain technology and crypto-tokens.

— The Golden Age of Open Protocols

The Blockchain projects aim to be as open as possible and make it easy for the developers, contributors, and users participate easily.

The ground reality as of now is not what the whole community and ecosystem is aiming to create. There is development complexity, less documentation, and the technology stack does not look very scalable.

It is like the early days of electricity when one light bulb could only be used for 40 hours without burning out and it looked unscalable to provide electricity in every corner of a country. But with gradual upgrades and improvements, today the electricity is everywhere.

But Blockchains didn’t took that long to show significant market adoption. The first adoption is by the creators, the next is market adoption. Both of these phases are achieved by the Blockchains, the next is wide user adoption and it won’t take more than 5 years for the tech to become mainstream.