Basics

  • Coinbase also has a messaging project called Token.
  • Tokens work as a representation of an asset on top of a blockchain, thus using another layer of the blockchain. Compared to cryptocurrency coins, which are coins from a protocol that has it’s own blockchain. However, the terminology has been blurring.
  • A token is an ID from a service that sits on top of a blockchain. Usually people say on top of bitcoin, but that's not a requirement. You can have a complex system that looks nothing like bitcoin but an ID that has meaning within the service can be stored inside the block chain within a transaction. So you can, say, buy a house and put the deed number into a transaction along with a bitcoin payment, thereby irrevocably linking that transaction to that deed number  in the bitcoin ledger. That deed number has no meaning within the bitcoin protocol; it is a token that provides a proof of a transaction to another, unrelated service.
  • As SingularDTV put it in a blogpost once: “Coins really only have one utility — to act as simple stores of value with limited-to-no other functionality. By “simple” value, I mean value not represented or manifested through a variety of dynamic functions. Tokens are a completely different breed altogether. They can store complex, multi-faceted levels of value. Forget everything you know about bitcoin and pre-mined coins and that entire ilk of tech, Ethereum tokens are generated by a Smart Contract System (SCS), are highly programmable and have multi-functionality because of it. They transcend being just a coin, and through their array of functions become something much more — “tokens”. Technically, they are not “offered”, they are “generated”. Probably the most accurate phrase of what’s going on during an Ethereum token launch is to describe it as a “Token Generation Event”, but I’m not sure TGE has the same flare as ICO. Nevertheless, a coin does one thing, and a token can do many things.”
  • William Mougayar wrote a post about tokens;

"Just because the SEC continues to pretend there is nothing new with tokens, and tags most of them as securities, doesn’t mean that tokens are doomed and have no future except for being labelled and treated like securities.

To the contrary, the token model is a fundamental innovation of blockchain technology, and it will eventually gain its footing and respect with the regulators who haven’t yet seized the scope of the paradigm shift that tokens encapsulate"

  • To read about Asset-Backed Tokens and their use-cases, check out this long read.
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