Crypto Academy Season 3 Week 8 - Beginner's Course | Understanding Tokens
Tokens are referred to as virtual currency which are issued to help in financing the project on which they are built on. They are digital currency that are built on an already existing blockchain. Tokens are created through the Initial Coin Offering (ICO) process which involves crowdfunding to fund project development.
Tokens can also be defined as a type of cryptocurrency that are used for representing an asset which can be used for investing, for purchasing or for storing value.
The table below show some examples of tokens and the blockchain on which they are built on.
| Tokens. | Blockchain built on. |
|---|---|
| Uniswap | Etherium Blockchain. |
| Binance Usd | Binance Blockchain. |
| BiTorrent | Tron Blockchain. |
| Chainlink | Etherium Blockchain. |
| Bancor | Ethereum blockchain |
| Tether | Bitcoin, Etherium, EOS Blockchain. |
| Everipedia | EOS blockchain |
Below are some of the differences between a Coin and a Token
Coins are only used as a money, They are used for payment services , store value but cannot be staked unlike a token which can be staked.
Tokens do not require much expertise before it can be created but Coin requires much expertise before it can be created.
Tokens are built on an already existing blockchain while Coins are not built on an already existing blockchain.
Tokens are circulated through the process of initial coin offering while Coin are are circulated through the process of mining.
Tokens are used for many purposes other than trading alone while coins are not used for many purpose as they are mainly used for payment purpose.
Examples of Coins includes, Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ripple, Stellar, NEO, e.t.c.
Examples of Tokens includes, Chainlink, Uniswap, Tether, Binance USD, FTX token, Aave, Dai, e.t.c.
- Utility Tokens
Utility tokens are cryptocurrency tokens that are created to fund the development of the cryptocurrency. Utility tokens are tokens that provide value to investors and they gives access to a future products or services. They are blockchain asset that people buy with the motives of using to buy or get something in the future.
Features of Utility tokens
It exhibit the ability to create unique incentive schemes which enables people to perform unique actions within the ecosystem.
It is easily produced.
It is regulated which aids assurance.
- Security Tokens
Security tokens are used for representing financial asset. They are used for representing an ownership stake of an asset. Security tokens serves as link between traditional assets and digital tokens. Holders of security tokens of a blockchain receives profits from the blockchain projects due to the ownership right the security tokens they held has bestowed on them.
Securty tokens exhibit the use of a device which generates a random number, encrypts it and then sends it to a server with user authentication information. A security token is a secure and profitable way of raising capital.
Features of security tokens
It support fractional ownership.
It is fraud resistant.
It enhances transparency.
It is subjected to securities trading regulations and so Investors are protected.
It is ACCURATE, LESS VOLATILE, MULTIFUNCTIONAL and INNOVATIVE.
Equity Tokens
Equity tokens is more like a security tokens which works like a traditional stock assets with the only different being the method of recording ownership. Equity tokens are tokens that brings some form of ownership of an asset in a blockchain and It exhibit the features of a Security tokens.Non-Fungible Tokens
Non- Fungible tokens are unit of data what are stored on the blockchain and which can be traded or sold on digital markets. Non-Fungible tokens are cryptographic token on a blockchain which represents a single asset and they function as proof of authenticity and ownership. They are associated with a license to using the underlying asset for a particular or specified purpose. They are mutually interchangeable which is depicted in the name NON- FUNGIBLE.
Features of Non-Fungible Tokens
It exhibits many analogies with works of art.
It is Non-interoperable.
It is Indivisible.
It is Indestructible.
It exhibits Absolute ownership.
Tokens are decentralized.
Tokens are built on an already existing Blockchain.
Tokens are used for storing Value.
Tokens can be used as for investment purposes.
Hayden Adam who is a former mechanical engineer developed the Uniwsap protocol on the 2nd of November 2018.
Uniswap is a decentralised protocol and an automated liquidity provider that was built on the Etherium blockchain. Uniswap exhibit no centeral facilitator and with this tokes are exchanged through liquidity pools which are defined by smart contracts. Uniswap makes use of the pricing mechanism which is called the Constant product market maker model.
Uniswap protocol version one(V1) was published in November 2018 as a proof of concept for automated market makers with its version 2 and version 3 was published on May 2020 and May 2021 respectively. Uniswap version 2 brings about a major upgrade which allows direct ERC-20 to ERC-20 swaps with some other technical improvements which makes it very desirable to use. Uniswap V3 was launched with the goal of making transaction faster and cheaper.
The native cryptocurrency and governance toke on the protocol is called UNI. UNi token was launched in September 2020 by Uniswap, airdropping 400UNI tokens which worth approximately $1400 to all the eterium wallet that has interacted with Uniwswap. 150 millions UNI tokens was distributed and within 24hrs it was airdropped, 66million were claimed. Having distributed 40% of the tokens in the first year, it is to diminise by 10% till it is all allocated.
UNI gives ability to holders to vote on how the protocol is to be run.
The following are the analysis made from https://coinmarketcap.com/ as of the time of doing this homework.
- Uniswap Price Today
- Uniswap Market Cap
- Uniswap Price Yesterday
- Uniswap Price History
- Uniswap Supply
Below is a screenshot that depict some Uniswap market.
It exhibit swapping features as ERC-20 can be swapped on the protocol.
Uniswap is powered by a token called UNI which is a tradable token.
It exhibit an open source code which can be forked to create new exchanges or new tokens. Tokens can be added to Uniswap by funding it with ETH equivalent value.
It exhibit a financial market place which is open to all and in which developers, traders and liquidity providers participate in.
It is provided on decentralized or networks that runs an open-source software.
It exhibit Automated markets makers.
It is governed by a decentralized community of holders of UNI token and delegates , that propose and vote on upgrades to the protocol.
It aims to create a more efficient markets.
It aims to used decentralized and non-custodial financial products to substitutes the centralized third party in financial applications.
It aims to solve mismanagement and arbitrary fees.
It aims to reduce the risk of hacking.
It aims to keep token trading automated.
Uniswap token solves liquidity issue.
It is used for exchanging cryptocurrency. It does this by using automated transactions between cryptocurrency tokens on the Etherium blockchains by making use of smart contracts.
It is used in decentralized finance(DeFi).
CONCLUSION
Tokens are different from a coin and as a trader each word should be used correctly to not complicate things.
Tokens are built on an already existing blockchain which means that it does not require much coding or programming or expertise before it can be created since there is no need to create a blockchain unlike coin which requires high expertise before it can be created.
The types of tokens includes, Utility tokens, Security tokens, Equity tokens and Non-fungible token (NFT)
Uniswap is a decentralized protocol built on an Etherium blockchain and it is powered by UNI token.
Thanks for this detailed and very explanatory lecture @reminiscence01.
Hello @ojerindejoel , I’m glad you participated in the 8th week of the Beginner’s class at the Steemit Crypto Academy. Your grades in this task are as follows:
Observations:
This is not always the case. Tokens are built for several purposes.
Recommendation / Feedback:
Thank you for participating in this homework task.