What the token is: how it works, pros and cons

What the token is: how it works, pros and cons

With digital assets gaining more and more space in the world and a high demand for cryptocurrencies, especially bitcoin, it is common to come across the term “token”, which is very common in the crypto universe. In literal Portuguese translation, token means “token” or “symbol” and refers to product registration on a digital platform.

The process of tokenization gives the asset virtual authentication and, consequently, more security in transactions, especially in financial transactions. A practical example: a NFT it is a kind of testimony; You may have seen the so-called Bored Apes, the “boring monkeys” that sell for millions of reais and were even bought by Neymar, Justin Bieber, Eminem and other celebrities.

Before going through the tokenization process, those “monkeys” were just the usual digital arts on the Internet. Now, however, they are assets that can be traded within the blockchain.

Blockchain is the decentralized technology that stores data and cryptocurrency transactions in encrypted form. In short, it is like a public book and immutable.

What are tabs for?

Tokens can be used to market products and services and even as a way to start an entrepreneurial journey. They have even been the solution for many companies to be able to raise funds to finance their operations.

They are divided into two versions: verification i authentication.

In the first, simpler case, it looks like a symbol generator, which creates unique codes for specific transactions, such as accessing an account and confirming a transaction.

In the second case, token technology goes further and is used, for example, to record transactions in an advanced cryptographic network. One model is the use by bitcoin, which integrates the blockchain, a system of blocks that record all the information circulating through them and allows double authentication.

The cryptocurrency can also be used with the raise funds for new projects, who need an initial contribution. Thus, a company issues several units of the asset, in reference to the listing on the stock exchange, and investors have the right to repay the securities in the future or even convert the purchase into corporate rights.

How do tabs work?

The operation of each token depends on its configuration, such as the type and blockchain platform to which it is linked. One of the characteristics of the cryptographic asset is the fact that it avoids manipulation, which gives more security and authenticity of financial transactions.

Depending on the platform, the cryptocurrency may also be used as a single digital asset, enabling cryptocurrency-like trading.

What are the types of tokens?

There are currently 4 main types of tokens: payment tokens; utility witness; security witness; and NFT, each with its own particularities.

Utility sheet:

This is the most popular tokenization model, which conveys to the buyer some benefit, such as early access to a product or service. This category allows you to purchase and use the testimony within a single system and for a specific purpose.

Payment card:

In the same way that cryptocurrencies work, the payment token is usually used monetary transactions. With it, the holder can make purchases of products and services in companies that accept it as a form of payment.

Safety data sheet:

The security token works very similarly to the stock offer of companies on the stock exchange. It’s used for to support a project and offers the investor the option to reverse the value in cash or in parts of a company in the future.

NFT (non-fungible token)

NFT is a more recent form of witnessing unique digital authenticity of a file. This model has been widely used in the art world to create digital properties of images.

What is a fan token?

Another modality that has gained followers is the fan token, a digital asset that can be acquired for a certain amount in exchange for profits. The best known product is the football club fan token, which works as a membership program, in which fans acquire units and acquire preference in the acquisition of products and services.

How are tabs created?

All tokens are created using network technology, always leading to smart contract in your training. When it comes to monetary value, transactions are made in the cryptocurrency to which it is linked, such as bitcoin and ethereum.

Each platform, therefore, has its own rules for creating and developing tokens. The creator must meet all the requirements to be able to host the asset on the platform of their choice.

Can anyone create tokens?

There are no specific rules about when and who can create tokens. However, as it is not an easy process, this creation requires a lot technical knowledge. Currently, there are digital platforms that offer the support service for the creation of cryptocurrencies.

How to create a token?

To start creating a cryptographic asset, the first step is to find a tokenization company that will verify the veracity of the item involved. Next, you need to create a smart contract with all the information about the item and the rights of the testimonial buyer.

This contract will be hosted on the trading platform, with the ability to define emission limits, rules of use and other issues. After that, the product is distributed to the market, following the imposed conditions.

Is the token safe?

The whole process of creating and distributing the token goes through controls, which attest to the security and transparency of the asset, and all the information that circulates through platforms such as the blockchain is encrypted and immutable. In addition, the process is linked to a smart contract with several clauses.

And the future of the token market?

Published earlier this year, a report by the consultancy Markets & Markets showed that, only in 2021, the The tokenization market moved more than $ 2.3 billion (about R $ 11 billion) in the world.

For the next 5 years, the expectation is an average annual increase of almost 20%, to reach $ 5.6 billion in 2026.

What’s the difference between tokens and cryptocurrencies?

There is no consensus in the market, but it can be said that cryptocurrencies are the native assets of a specific blockchain. For example, Bitcoin and Ethereum.

Although tokens are assets created by platforms that are based on these blockchains, that is, they do not need a single blockchain to exist. Many NFTs, for example, are built into the Ethereum blockchain.

In short, it can be said that every cryptocurrency is a witness, but not all witnesses are a cryptocurrency. In everyday life, however, these two terms end up being used interchangeably.

Witness benefits

Compared to a stock market, for example, the tokenization of a company is a lot cheaper and more accessible. So this is one of the biggest benefits of the token.

Other benefits are security and agilityas encryption platforms carry out the entire process of verifying and storing information.

Disadvantages of the token

Unlike other digital assets such as cryptocurrencies, the token it does not have as its ultimate goal the valorization. This, then, is their biggest disadvantage, especially for investors who want to take advantage of it.

How to exchange tokens?

Now that you know what a token is and how it works, the next step is to start trading this type of asset, which can be an alternative to diversification of its investment portfolio.

At Mercado Bitcoin, the largest cryptocurrency exchange in Latin America, you can deposit your balance in real using PIX and buy and sell tokens and cryptocurrencies securely.

The exchange offers a variety of tokens, including fan tokens, which can be traded 24 hours a day, via mobile or desktop.

For more information and to open your free account, click the button below:

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