A Taxonomy of Tokens

The cryptocurrency sector has witnessed a remarkable surge in the volume of tokens being introduced over the past couple of years.Initial Coin Offerings (ICOs) evolved into a favored method of raising capital , allowing project teams to swap tokens for monetary contributions. Additionally, the development of decentralized applications (DApps) has surged, with many necessitating their unique token types.

With the token landscape expanding so rapidly and dispersed so broadly, it's easy to feel lost. This comprehensive guide simplifies tokens, providing clear illustrations of their nature and purpose. Examples from leading blockchains that house the largest tokens will be showcased. token terminology A token fundamentally represents a digital currency, service, or product originating from a

What is a token?

blockchain or a decentralized app. While ordinary cryptocurrencies function as digital financial mediums,blockchain tokens may serve varied roles, contingent on their design. Generally, they are crafted to fulfill a role within the DApp or blockchain they are part of.tokens A primary application for tokens is capital raising . Three major cryptocurrencies involved:

What are they used for?

Fundraising

Ethereum, , and Tron all achieved funding by token issuance. Ethereum released Ether, whichEthereum, EOS secures the Ethereum network and is also transferred into Gas, used for compensating transaction fees on the network. Ethereum's ICO occurred over 42 days in 2014, selling Ether at rates between 1,337 to 2,000 Ether per Bitcoin contributed.incentivise miners Countless projects debuting their own blockchains implement a strategy to distribute tokens on a pre-existing blockchain initially . Following successful launches, they transition to establishing their own mainnet blockchains.

Both EOS and Tron completed their ICOs on the Ethereum network. Tron and EOS tokens, initially Ethereum-based, served as stand-ins until the launch of their main blockchains. Token holders were able to migrate their tokens to these new blockchains, converting them to EOS or Tron cryptocurrency.

Another frequent token usage is within a DApp or blockchain as a digital product or service . A standout example is CryptoKitties. This DApp, built atop the Ethereum network, lets users exchange Ether for one-of-a-kind digital cats . Cat breeding is possible for those with two cats, producing completely new unique ones by network fee payment.

Offering Goods and Services

Each distinct cat within the DApp multiplies as a token, and a vibrant marketplace exists where different digital cats are bought and sold. CryptoKitties erupted in popularity in December 2017 , leading to network slowdowns, seeing them valued up to $172,000 each at the peak.

Ethereum's tokens are unquestionably the most widespread . Numerous high-stakes projects have utilized the Ethereum blockchain platform for executing ICOs, enjoying its mature DApp ecosystem where over 1750 DApps reside.

Ethereum Tokens

Tokens running on the Ethereum blockchain adhere to specific ERC standards, namely ERC-20 and ERC721. These standards

enable developers to deploy tokens in line with personally crafted specifications.smart contracts ERC-20 tokens are the predominant choice in token issuance. Companies employ them most frequently during ICOs and when tokens are designated as native currencies within DApps.

ERC-20

A critical aspect of ERC-20 tokens is their interchangeability . This means all tokens hold equal value. Each token is valued consistently against Ether, US dollars, or equivalent.

Consider inventing a game, maybe called the HODLympics, crafted as a DApp on Ethereum where competitors vie for tokens through assorted challenges, striving to amplify their token collections.

HODLcoin, the game's ERC-20 token, functions as currency within the context of the game . Ensuring each HODLcoin carries the same value is essential for fungibility, aligning with the game's foundational principles.

Similarly, in ICO contexts, should exchanges of tokens for funds lead to variance in token value, fundraising objectives may be compromised . A disparity in token value creates investor reluctance, jeopardizing participation.

This introduces Ethereum's alternative token type: ERC721 tokens, which are non-fungible . Every token here is distinctive. CryptoKitties exemplifies such a model, dealing in ERC721 tokens. Each token equates to a singular digital cat, leading to fluctuations in token value . For instance, the early unique cats were highly sought after, achieving sale prices of approximately 250 Ether each.

ERC721

Upon concluding a year-long ICO on Ethereum, raising roughly $4 Billion in Ether , EOS introduced its mainnet blockchain in mid-June 2018. EOS's design aims at overcoming Ethereum’s scalability hurdles , though this means adopting a distinct consensus algorithm, leading to debates about its security trade-offs.

Other Tokens

EOS Tokens

EOS positions itself as an 'Ethereum Killer' (launching a new tab on click)

Many dubbedEOS to be the Ethereum killer Developers meticulously tailor parameters, like supply, deploying tokens within a DApp or directly onto the EOS blockchain. Betting games dominantly lead popular DApps on the EOS blockchain.

Tron establishes itself as Ethereum's competitor , addressing scalability constraints similarly to EOS. Like EOS, Tron's consensus mechanism invites scrutiny over security, yet developers have incentives to shift their projects from Ethereum. Tron’s virtual machine is coded to align with Ethereum’s virtual machine , easing DApp and developer migration.

Tron Tokens

One strategic move by Tron involves reducing smart contract operation expenses , making it financially favorable over Ethereum. Despite over 1600 token releases on the Tron blockchain, its DApp ecosystem struggles to match Ethereum’s, with many tokens yet to be actively used.

Earlier this year, StellarX, a decentralized exchange, was launched by Interstellar on the Stellar blockchain. The organization crafts products aimed at Stellar blockchain enhancement . A major challenge with decentralized exchanges has been the limitation of asset speculation to blockchain-native tokens. For example, an Ethereum-descended decentralized exchange would confine itself to Ethereum and associated tokens.

StellarX innovated by enabling speculation on non-native tokens . StellarX users could trade cryptocurrencies and genuine commodities, such as gold, via asset-representing tokens.

Tethered Assets

For instance, transacting gold on StellarX involves converting to a token that effectively depicts gold—a concept termed as a tethered asset . Different issuers present alternate tokens, which holders can redeem directly through the issuer. Ethfinex This system poses inherent risks to exchange users. Proper function requires that tokens correspond one-to-one with actual assets, eligible for redemption upon request. The risk lies in issuers potentially holding partial assets against token circulation, using the remaining stake for risky investments or alternative utilization.

Bitcoins can also find themselves represented within token forms. While Ethereum, EOS, and Tron employ Turing-complete programming languages , simplifying DApp development and token deployment, bitcoin’s native Scripting language makes even the most basic smart contracts or DApps intricate to construct.

In recent years, Initial Coin Offerings (ICOs) have surged in popularity as a means of raising capital. Teams behind projects issue tokens to secure funding.

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Bitcoin Tokens

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Key Token Takeaways

Over the past couple of years, the exponential rise in the number of tokens within the crypto space has been nothing short of remarkable.

Initial Coin Offerings (ICOs) have increased in popularity as a fundraising method where teams develop tokens to obtain capital. The rise of decentralized applications (DApps) has bolstered this growth, with many apps requiring their own unique tokens.