Cryptocurrencies and tokens are two aspects of the blockchain world, operating side by side. Both their features and uses seem to be very close to each other. That’s why this time we decided to introduce you to the world of tokens themselves by using examples of the two most popular groups.
Tokens – what exactly are they?
Due to the multitude of applications that can be hidden behind a token, its definition is very difficult to define precisely. In any case, a token refers to the value that its issuer decides to give it. The most common tokens represent deposits, currency balances, digital assets of various kinds, shares in a company or even user reputation. As a rule, such values can be transferred between network users.
Security tokens – brief characteristics and principles of operation
If we were to put in two words what security tokens are we would say that it is an investment contract. They are used in almost every industry, and their purpose is to translate the value of both digital and non-digital resources precisely into a token. This process is called tokenization, and its popularity is steadily gaining momentum. The transformation of cryptocurrencies as well as traditional currencies into such tokens is done using smart contracts.
The name “security token” does not come from nowhere. It stems not only from the security of the value, but also from the need to go through a regulatory process. Which means that fraud on this type of resource is very difficult, and consequently almost unheard of.
Utility tokens – brief characteristics and operating principles
Utility tokens are by far the most popular set of tokens in the blockchain. Thanks to ICOs, they have contributed to the creation of many projects. The great boom for utility tokens in ICOs took place in 2017. When communities gathered around various initiatives and purchased tokens at very low prices. This helped many initiatives see the light of day.
Utility tokens have their uses in loyalty programs of various platforms. In the article titled “What is Binance Coin (BNB)“, we talk about the use of the BNB token. The possession of the Binance Coin lowers the transfer amounts on the Binance Exchange. This makes BNB owners’ voice be heard in the further development of the project. It is important to note that the Binance Coin was also created through the collection of ICO’s. This example almost perfectly illustrates the principles of utility tokens. It is worth remembering that their overriding principle is the ability to use their value, within a specific platform.
Opportunities of tokens
We hope that this short material has explained to you in the simplest terms what tokens are and what the differences between security tokens and utility tokens are. They open up many opportunities to invest in assets that previously were not considered easily accessible. Fortunately, thanks to tokenization, each of us can become a participant in almost any market and reap all sorts of benefits in this field.