Token are becoming more common with the development of internet technology and digital assets. Today we will figure out what they are, how they can be used and what they are needed for.
What is a token?
A token is a unit of account used to calculate and display the denomination of a digital asset. Tokens are accounted for using databases organized using blockchain technology. Access to data in a distributed network is provided through applications using cryptographic signatures. These are called custom keys.
Types of token
There are several types of tokens. They differ in assets. They are:
- Equity tokens – used to display the value of companies’ shares.
- Utility tokens – used to calculate and display assets within a specific model or platform. They are used in services, reflect reputation, points, virtual currency, etc.
- Asset-backed tokens – obligations for real products and services: working hours, work days, units, product weight, etc.
How are tokens secured?
Only asset-backed tokens have direct collateral. An asset duplicates a quantity of goods or services. One token is equivalent to one kilogram of products, one movie ticket, one meter of real estate, etc. The denomination of the token is guaranteed by the organization itself, which stores and sells goods and services.
Tokenization of assets – what is it?
Digitizing a company’s assets and products is called tokenization. In addition to specific units of goods and services, the electronic form is also acquired by accounting and asset management. Tokenization is designed to quickly and accurately transfer real assets to digital ones. This makes it easier and faster to work with them. For example, a company creates commitment tokens to provide products to customers. Tokens are traded on online platforms, with the subsequent transfer of rights to receive products to other customers.
What are the differences between tokens and cryptocurrencies?
A feature of cryptocurrencies is decentralized emission. Tokens can be issued centrally – by one issuer. The processing and execution of transactions is carried out centrally, under the control of the issuing organization. The cost of tokens is formed according to supply and demand, external factors and emission rules. Among which there is a link to a specific asset or value. To work with tokens, you do not need to create your own blockchain.
How to buy token?
Tokens are purchased using special trading platforms and exchanges. The sale and purchase of tokens can also be carried out through personal transactions. The procedure for trading tokens is similar to the process of buying and selling cryptocurrencies. Additionally, token issuers are introducing in their projects the ability to purchase tokens using traditional currencies and means of payment.
Where and how to store token?
The technologies for transferring and storing tokens are similar to how these processes are organized in the cryptocurrency space. Their placement on the account and processing of transactions is carried out using wallet applications. They are provided by the platforms on which tokenization is implemented.
What are the benefits of tokenization?
Speaking of tokenization, you need to know what benefits it gives:
- Acceleration of trade processes due to the absence of the need to move real assets, registration of documentation that confirms ownership.
- Increasing the level of security in transactions and storage of assets, thanks to the reliability of blockchain technology.
- Exclusion of intermediaries from the working relationship between the client and the company, which reduces the total cost of products and services. It also shortens the delivery time.
- Improves the overall functionality of the trading infrastructure by adding new tools for the company and the client. The following modules can be introduced into the platform: additional levels of authentication, regular payments, recharge cards, etc.
- Improves and simplifies the user experience when working with a company and its products by implementing most of the functions and capabilities using a mobile application.
What are the benefits of blockchain in the tokenization process?
The blockchain is used as the main platform for the circulation and storage of tokens, since it provides the following advantages:
- High level of reliability of the digital register due to regular checks of the integrity and reliability.
- Processing and implementation of transactions within a distributed ledger using multiple independent servers, which increases the resilience of the network and reduces the risk of cancellation of operations.
- Possibility of high-quality and structured audit thanks to a detailed history of transactions.
What are the risks and problems of tokenization?
Like any digital instrument, tokens are subject to certain risks and circulation problems, including:
- The likelihood of theft of user keys by hackers, which is impossible to predict.
- Use of confidential data in public blockchains to verify transactions.
- Difficulties with scaling in the conditions of a decentralized accounting system, due to technical limitations on the bandwidth of distributed ledgers.