Steemit Crypto Academy Week 2, Season 2, Homework Task for Professor @pelon53

Hello everyone, it’s all about token this week for our able Professor @pelon53. I will begin by giving a brief explanation of token before giving details of the different tokens.

From my understanding, a token could be any useful or valuable item used to satisfy the need of a community in a specific ecosystem. These tokens does not have any legal tender. Tokens are used by companies during Initial Coin Offerings (ICOs). This could be in the form of clay or book etc. There exist different types of tokens as seen below:

A)- Security Token:
It is a hardware device or electronic equipment in the form of a smart card. This could be used to keep digital information of investors. This device allow the owner to have access to the network. The device could also be used to replace password.

With regards to blockchain, security tokens are like shares of companies. This token could be gotten during ICOs, and it means that the investor is a shareholder of the project. This means that your token is equivalent to investment contract.

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i) Pros of Security Token

• It does not require an investor to hire a lawyer before purchasing the token.
• It has high number of investors.
• It is easy to liquidate the token.
• It has a larger and free market.

Cons of Security Token

• It does not have any legal tender, meaning that the token is not legally backed by the government.
• Another con is that the token has market restrictions as one can only trade with qualified investors over a given period of time after securing token offerings.
• Also, the token required that users move along with it which can easily get missing.

iii) Blockchain Capital (BCap) an Example of Security Token

This was one of the oldest security tokens offered to investors. It was founded in 2013 by Bart Stephens, Wradford Stephens, and Brock Pierce. An ICOs was carried out in 2017 where they were asked to raise about $10million USD in 6 hours. Today one can say BCap token investors earn over 70% of profits from their token.

B)-Utility Token
This could be defined as a form of digital currency issued by service providers on a blockchain. This token can be used to buy either goods or a service. The only means to purchase by utility token by investors is during ICOs. The platform is the only guarantor of the security of the token. This token is equally used by startups to raise funds for projects. In sum, utility tokens are assets on blockchain network where investors can purchase it to use in the future.

i) Advantages of Utility Token

• It is cost effective
• It is easy to trade depending on the law guiding the activities in the market.
• Utility token gives investors access to company’s products.

ii) Setbacks of Utility Token

• It does not legally use crypto currency.
• There is no strategic plan put in place to increase market value of the token.
• In terms of market liquidity, it is not easy to convert the token into cash if the capital planned for the project is not attained.

iii) Basic Attention Token (BAT), an Example of Utility Token
This is hosted on the Ethereum blockchain network. It is used by digital advertising companies. One can earn this token by creating content or published on the Brave Browser. The value of your token is determined by the number of viewing ads a user views on the browser. Thus, the more ads you view, the more rewards you gain on BAT.

C) Equity Token
This is in the form of a traditional stock asset given to investors during equity token offerings. Here, investors are given voting rights and ownership of their investments. The percentage of ownership of an investor is determined by the amount of token an investor holds. This could be in the form of stocks, and option contracts etc.

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i) Pros of Equity Token

• Investors has full control and right to vote of the future of their investments on the blockchain.
• It is flexible to investors as their investments are secured since they are in full control and take decisions freely.
• Equity token can be interchanged and it is managed by a regulatory board in each country where it is issued to investors.
• It allow buyers to take full control and decisions of their activities on the blockchain.

ii) DAO an Example of Equity Token
Decentralized Autonomous Organization (DAO) is an innovation on blockchain network which was created in order to redefine operations of organizations. It is promotes transparency and investments are more secured due to the fact that the DAO uses smart contracts hosted on the network.

The DAO project was created in 2016 by Simon Jentzsch with the preoccupation to build the largest DAO Ethereum network. They carried out one of the largest crowdfunding campaign where they were baked to raise $150million USD. However, due to some weaknesses in their codings, hackers hacked the system and made away with $50million.

An example of how DAO could be used is let’s say in an Association where they decided to buy 10 autonomous cars to work as taxis in towns in a particular country. It is required that each member pays an annual fees which are intended to purchase and maintain the taxis.

With the use of smart contracts, each member deposits his or her funds in the form of let’s say Ethers. This way, the funds will not be handled by any central authority be it president or treasurer of the association. But, smart contracts enables everyone to democratically take decisions before funds are used.

So, the smart contracts blocks the funds until when need arises, members can therefore vote in a transparent manner before funds can be unblocked to be used.

In sum, amongst all the tokens analyzed above, as an investor, I will go in with the equity token because the use of smart contracts makes it transparent and secured. Kudos to our professor @pelon53 for the knowledge on tokens. While waiting for your feedback, remain blessed.

Cc: @pelon53