Blockchain is revolutionizing many industries and changing the way we transact with each other. Since the introduction of Bitcoin in 2009, there have been a lot of developments in the blockchain world. One of the major focuses has been blockchain tokens. Tokens are raised through Initial Coin Offerings (ICOs) which are the blockchain equivalents to Initial Public Offerings (IPOs). With ICO, blockchain startups have raised millions of money without having to rely on traditional venture and private equity firms. To mention just a few, in the last 6 months Bancor has raised $159 million, EOS $200 million, Tezos raised over $200 million and several others. Tokens are basically shares in a business. Investors therefore buy tokens in believe that it will appreciate in value as more people use it. These blockchain tokens have gained a lot of focus in the recent past because of their ability to adopt peer-to-peer funding model that is efficient, cost effective and faster than existing models. Even SEC made a consideration for ICOs, where tokens raised are to be considered as securities.
Tokens are a core part of Blockchain
First, in order to understand blockchain tokens, we need to understand blockchain itself. Blockchain is simply a publicly distributed ledger that keeps permanent record of all digital transactions. By public, it means that blockchain ledger is accessed through peer-to-peer networks and not a central agent, authority or server. The way it works is such that replicated databases are maintained within nodes in a network. There are ‘miners’ whose work is verifying transactions within the network. There are ‘blocks’ in the blockchain that contain a record of recent transactions. Through solving mathematical puzzles, these blocks are verified by miners thereby enabling transfer of value from one person to another. Miners are rewarded with tokens for successfully verifying transactions. Therefore the decentralized network has economic value to miners and consumers which is different from centralized ledger systems which are controlled by a single entity such as a bank or government. Tokens are core part of blockchain and they would not work without them. Tokens are usually part of the incentive part of the blockchain network. One of the main incentives is to validate transactions and create blocks in the case of Bitcoin, or to prevent transaction spam in case of Ripple.
All Cryptocurrencies are Blockchain Tokens
Anyone with knowledge and skills can build tokens on top of blockchain technology. Bitcoin, Ethereum, Litecoin and others are all cryptocurrency tokens or simply tokens. They represent digital assets that are transferrable to someone else. Therefore one of the first token to be built on blockchain technology was Bitcoin and then the floodgates opened. Another major token is ‘Ether’ which is built on top of Ethereum blockchain. With Ethereum blockchain, one can build their own token without having to start from scratch every time. This aspect is what makes blockchain a big deal: ability to leverage on existing infrastructure and build a new product.
In addition, tokens are valuable because they are built on a blockchain which is not prone to manipulation, is decentralized and immutable. These aspects of blockchain are key competitive advantages of tokens. Since no one individual has power and control over tokens, they cannot manipulate them based on their own needs. Another major aspect is community governance on which blockchain tokens are built upon. With community governance, majority of these tokens are run through consensus of developers and other contributors in the network.
Bockchain Tokens for transferring money
Furthermore, tokens represent value that can be transferred from one person to another regardless of geographical limitations. Until blockchain technology came through, the internet could only be used to exchange information and other related aspects. However, with blockchain tokens, it is now possible to transfer value from one person to another at very low costs. Already, tokens are being used to facilitate transfer of money from one person to another. Money transfer is just one aspect that is possible with blockchain tokens. Developers are taking advantage of blockchain technology and building new and improved protocols from the ground up. These developments have the potential to solve problems related to centralization that has been a major concern for the internet for a number of years. Some of these blockchain tokens that are being built are: domain name systems, identity systems, cloud computing, reputation systems and many more.
Blockchain Tokens in Smart Contracts
For example, with the introduction of Ethereum, more possibilities are to be realized. Ethereum tokens allow anyone to enter into a contract with another person and it is executed on the blockchain without the need for third parties. There is real possibility in enabling blockchain to improve aspects such as Internet of Things(IoT) in bringing about more connectivity between sensors, devices in decentralized platforms. This is a game changer in unlocking the potential in terms of the way in which people transfer and store digital assets. All in all, blockchain tokens present immense potential in unlocking value in the way people acquire, transact and store wealth and information digitally. It is now possible to leverage blockchain tokens through cloud based platforms, applications developments, and analytics among other related aspects in order to build innovative products that lower operational costs and unlock potential for all the players involved.
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