Steemit Crypto Academy Season 2 Week 2 Homework Task By @abdulhalim100: Tokens

Hello lovely members of steemit. It is another week of the steemit crypto academy season 2 and I will want to say a very big thank you to professor @pelon53 for his great lecture on tokens and the various types of tokens as well. I enjoyed being part of this lecture and I really learned a lot about what tokens are and their respective types. I am here to present my homework task on this nice topic.

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Introduction

Before I begin with this homework task I think it is necessary for us to understand what a token is before we proceed with anything else about a token.

The term 'Token' simple means a special virtual currency that represent a changeable and tradable assets that occupies their own blockchain. Tokens are often use to raise funds for public sales and can also be used as a substitute for other things. An Initial Coin Offering (ICO) creates, distribute and circulate these tokens into the blockchain world.

Many people don’t know the difference between a token and a cryptocurrency. People are found using these two terms interchangeably without knowing the difference between the two. We would look at some of the differences between the two to clear our minds off about the two terms.

Differences Between Token And Cryptocurrency

It is very necessary not to confuse ourselves with the two terms “tokens” and “cryptocurrencies” as there are crucial differences separating the two terms. Below are some of the differences that separates the two words;

1. Tokens are created on an existing blockchain but cryptocurrency are natural assets of a blockchain.

2. Also, tokens works in an ecosystem to satisfy the needs while cryptocurrencies are limited to serve as a medium of exchange.

3. Tokens are programmed under smart contracts to accomplish the aim for which they were manufactured and cryptocurrencies are not programmed under smart contracts.

To have a complete understanding about the crypto market one has to do a research and get some basic knowledge of the most common token types. We have several token types but due to the limitations of our lecture I am going to talk on only three (3) of the token types. Below are the token types I am going to talk about;

1. Security token

2. Utility token

3. Equity token

Question 1

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What Is A Security Token?

Security token is a unique token spread on a permissioned or permissionless blockchain that represents a stake in external asset. A security token can be spread by materials like businesses and serve the same purpose as their official partners. Some major security tokens are; securrency, swarm, polymath etc.

A security token with an attached rights and responsibilities has the following important features;

1. Access to several goods sectors.

2. Access to a worldwide network of investors

3. Generating allowances.

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Advantages Of Security Tokens

Reduces Charges

Fundraising campaigns has been hosted by some international companies with the authority from security tokens. Transferring money internationally has been a headache. There has been delays in transferring money internationally depending on the amount. Security tokens investors remove this international charges and money can be transferred internationally with no charges. It also take minutes for your transaction to be complete.

Improved Market Performance

The clear nature of blockchain system reforms the current market system. Monitoring facilities are provided by security tokens to keep tracking how the system works. Investors can easily check on their tokens through blockchain monitoring app.

Disadvantages Of Security Tokens

It More Costly Than Utility Tokens

As compared to ICOs, STOs wants to include a moderator of other institutions in their crowdfunfing campaign. Approve institutions are a perfect example of an added value that STO participants need to pay the bill for. Managing is not easy and it is much more costly to moderate an STO when compared to an ICO.

Market Trading Restrictions

Market trading restrictions is another drawback for security tokens. Investors using security tokens can only transfer tokens via licensed platforms. The platform must possess a security trading’s license in the country they work before they can be able to transfer tokens for investors.

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Polymath As An Example Of A Security Token

Polymath is an example of a security token which needs to give a method for universal investments assets to be tokenized and tradable in a way that is similar to other blockchain assets. An STO (Security Token Offering) is what they want to use to do this. The aim of a polymath is to gradually have an ecosystem and ways where verified investors can buy and sell tokenized securities that are equivalent to other trading.

The polymath system was found in 2017 by Chris Housser and Trever Kovert with the aim of promoting and serving developers to launch their STOs. It has its own security token called POLY.

Question 2

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What Is A Utility Token?

A utility token is a non-physical token that has been created to fund development of the cryptocurrency which can later be used to buy a good offered by the cryptocurrency. This simply means that the buyer of a utility token has paid for the token to the issuer so that the firm can construct a product that can be redeem by the buyer of the token later for goods.
Utility tokens can give value to investors in several ways which will let them have access to future products. They are currently the most well-known tokens in the world. Below are some important features of the utility token;

1. It is used as part of the wide ecosystem due to its popularity.

2. It can also be used as a substitute for medium exchange.

3. They don’t possess membership rights.

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Advantages Of Utility Tokens

1. The advantage to getting to its administrations at limited costs.

2. Effectively exchanged on trade and thus depend on the law of free market activity.

3. With utility token there are no currency and equity. Meaning there is no established controlling around them.

Disadvantages Of Utility Tokens

1. A utility token is built around a community. Blockchain start-ups with no rigid community will hardly be successful with giving their utility token.

2. Again, this community does not have any agreements. That is why they are usually very keen in what is moving on in the project.

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Filecoin AS An Example of a utility token

Filecoin is one of the examples of a utility token, it stores information under a blockchain system and all its files are store in the cloud. It is a utility token that is created to be used in giving token holders a right to use the network. You can describe a filecoin as an island economy where users come together to produce valuable storage goods and export them to the world. The utility of the system is repeated in the attractiveness of goods that the users produce in the system.

Question 3

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What Is An Equity Token

Equity token is a type of token which is broadly used to require ownership over an assets. Just like other financial appliance and similar to the universal way but equity tokens have documents in virtual forms whereas the universal way has physical documents. Both forms contains the same valid data and since the equity token is decentralized it has its information stored in blocks and encrypted as well. It has its own uniqueness when compared with others and it do not also uphold the share over an asset alone, it provides voting power over it.

As I already mention earlier, the equity token has an authority over the asset and that is the main difference between the universal and equity token in the blockchain system. Below are some benefits one get from using equity token;

1. Asset safety

2. Authority

3. Buyback rights

4. Voting power

5. Cash flow and many more.

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Bitfinex As An Example Of An Equity Token

The bitfinex token is one of the frequently ranked cryptocurrency trading platforms among the popular exchanges in terms of daily trading volumes. The exchange provides to more intermediate and leading treaders as well as organizations. It also gives a wide range of token, trading pairings and trading options as well.

Bitfinex equity token is an example of equity token which belongs to the bitfinex company. It was created and in the year 2012. The company gives cutting-edge digital asset investing service for world liquidity users and brokers. The monies raised by the bitfinex token were concentrated through an IEO (Initial Exchange Offering) and acquire some amount of the total volume they gathered. In the year 2017 the bitfinex token company managed to gather an amount of one billion U.S dollars.

Conclusion

To conclude with, I will say the blockchain world is the future because we see new inventions day-in-day-out on this platforms. Tokens will continue to evolve as the new digital projects based on the blockchain system. The three types of tokens explained in this content classifies these, depending on their functions within a firm and they also speaks a lot about the security that a new platform based on the blockchain cryptocurrency can give to its users who are willing to invest in it. In this system of token and tokenizations there is still a way to follow but the future is closer.

Thank you all for going through my task.

@pelon53