It’s an undoubted fact that the world is witnessing an era of economic transformation, wherein we can see the growing inclination of global economies shifting towards crypto tokens. These virtual currencies are of great value and come with tremendous benefits, the most prominent being secure transaction and lesser government control which makes them an excellent choice for many. With its ease of transaction, these cryptocurrencies are also susceptible to being hacked making their use questionable.
Another popular term that we use while talking about virtual currencies or other currencies is token or crypto token. So, what is this crypto token?
To explain this, let us first begin with understanding the definition of the token and then switch to crypto tokens.
You would have visited a gaming zone in your town; there you need coins to access and play the game. There you don’t use the money instead you switch them to fiat coins which when inserted in the box enables you to play the game. The crux of the matter is that these tokens have value but are not minted by the government. They are the currencies which run in the premises of the gaming zone.
The crypto tokens are similar to this, they also hold specific value and are used to do transactions and exchange on the blockchain. These tokens don’t have their blockchain instead they are hosted on another currency’s blockchain.
A token as the name suggests represents the value of something else but doesn’t have its value.
Crypto Tokens represent a specific Value-
As mentioned above, cryptocurrency token symbolizes a tradable good. It can be coins, certificates, in-game items, etc.They can also be used to represent a share in the company. Sometimes, they are also used to raise funds, and thus many people also denominate it as cryptocurrency assets or crypto equity.
What are the different types of tokens?
A token can fulfill any of the following conditions-
- Currency used as payment system between the participants
- Digital asset
- Means of accounting
- A share or stake
- Payment for using system
How do crypto tokens work?
The functioning of crypto tokens is simple, someone who has crypto tokens when sends to the other over public Blockchain, what they are carrying is the digital numbers recorded in a public ledger. To send these tokens an address, the sender needs to use their private keys to sign the transaction.
Finally, to validate the transaction and to add it to the public blockchain like Ethereum or Bitcoin, the miners use electricity to solve complex computational puzzles. Once they solve the puzzle they receive crypto tokens for their work, it’s like you are playing a game, and once you win the game, you get some cash reward for it added to your address (kind of Bank Account) in you can later use it buy something of equivalent value.
This was the brief about the first-generation crypto tokens, moving ahead to the second generation there will be more consensus algorithm, new security protects, etc.
In the present scenario Bitcoin and Ethereum are the most prominent Blockchain protocols, and to validate transactions over this, the miners collectively consume the same amount of electricity as a small country.
Although crypto tokens have become very popular, it’s only a bunch of few people who are using these. Another essential point to note here is that tokenization poses few challenges the likes of which include –
- Syncing it with banking systems
- Government regulation
- Public trust and confidence issues
The way ahead for crypto tokens and cryptocurrencies
Despite series of challenges that the crypto token poses, it is still witnessing ever-rising inclination. It is an undeniable fact that the web took years to flourish and mature and gain the reputation which it has today. The similar timeline is expected with Blockchain ecosystem. Cryptocurrencies and Tokens raised a record $1.27 billion in the first half of 2017 through Initial Coin Offerings. Amidst all this, there is another truth that not all cryptocurrencies are going to survive and last for long, but the ones who do will lay the foundation of a new age.