5 Things you need to know about Digital Tokens

Tokens.

“In the blockchain world, a token is a tiny fraction of a cryptocurrency (bitcoin, ether, etc) that has a value usually less than 1/1000th of a cent, so the value is essentially nothing, but it can still go onto the blockchain…This sliver of currency can carry code that represents value in the real world — the ownership of a diamond, a plot of land, a dollar, a share of stock, another cryptocurrency, etc. Tokens represent ownership of the underlying asset and can be traded freely. One way to understand it is that you can trade physical gold, which is expensive and difficult to move around, or you can just trade tokens that represent gold. In most cases, it makes more sense to trade the token than the asset. Tokens can always be redeemed for their underlying asset, though that can often be a difficult and expensive process. Though technically they could be redeemed, many tokens are designed never to be redeemed but traded forever. On the other hand, a ticket is a token that is designed to be redeemed and may or may not be trade-able” (TokenFactory.)

“Tokens in the ethereum ecosystem can represent any fungible tradable good: coins, loyalty points, gold certificates, IOUs, in game items, etc. Since all tokens implement some basic features in a standard way, this also means that your token will be instantly compatible with the ethereum wallet and any other client or contract that uses the same standards. (Ethereum.org/token.)

“The most important takehome is that tokens are not equity, but are more similar to paid API keys. Nevertheless, they may represent a >1000X improvement in the time-to-liquidity and a >100X improvement in the size of the buyer base relative to traditional means for US technology financing — like a Kickstarter on steroids.” (Thoughts on Tokens, by Balaji S. Srinivasan.)

“A blockchain token is a digital token created on a blockchain as part of a decentralized software protocol. There are many different types of blockchain tokens, each with varying characteristics and uses. Some blockchain tokens, like Bitcoin, function as a digital currency. Others can represent a right to tangible assets like gold or real estate. Blockchain tokens can also be used in new protocols and networks to create distributed applications. These tokens are sometimes also referred to as App Coins or Protocol Tokens. These types of tokens represent the next phase of innovation in blockchain technology, and the potential for new types of business models that are decentralized – for example, cloud computing without Amazon, social networks without Facebook, or online marketplaces without eBay. However, there are a number of difficult legal questions surrounding blockchain tokens. For example, some tokens, depending on their features, may be subject to US federal or state securities laws. This would mean, among other things, that it is illegal to offer them for sale to US residents except by registration or exemption. Similar rules apply in many other countries. (A Securities Law Framework for Blockchain Tokens.)

In fact tokens go back. All the way.

In Before Writing Volume I: From Counting to Cuneiform, Denise Schmandt-Besserat writes, “Tokens can be traced to the Neolithic period starting about 8000 B.C. They evolved following the needs of the economy, at first keeping track of the products of farming…The substitution of signs for tokens was the first step toward writing.” (For a compression of her vast scholarship on the matter, read Tokens: their Significance for the Origin of Counting and Writing.

I sense that we are now at a threshold no less pregnant with possibilities than we were when ancestors in Mesopotamia rolled clay into shapes, made marks on them and invented t-commerce.