When it comes to cryptocurrency, coins and tokens are two fundamental aspects of a blockchain. Coins are the native digital assets of the blockchain, while tokens are built on top of that network. They serve as both stores of value and transaction fees for protocols built on top of the Layer 1 chain. The Guffawli native coin of the Ethereum network is ETH, and it is used to facilitate transactions within the network and to reward miners.
Cryptographic tokens need a substrate that ensures their validity
Tokens always need a substrate to ensure their validity. In the past, these are controlled by centralized entities or security mechanisms, like central banks issuing bills and coins. Today, these are controlled by smart contracts, the underlying distributed ledger, and majority consensus. Here’s how a blockchain-based system can achieve this. To understand the basics of a blockchain-based system, consider this example:
They’re digital assets
In simple terms, digital assets are assets created in digital form and issued using blockchain technology. Examples include cryptocurrencies, tokens, and CBDCs. Tokens are essentially a kind of digital asset that can be created, stored, and traded. While the terms cryptocurrency and token are often used interchangeably, the two terms are different. Tokens are digital assets built on a blockchain that stores transactions and records the value of those transactions.
They’re store-of-value
Tokens and coins both serve the same purpose as store-of-value on blockchains. They represent the value of an asset, and are used as payment for a range of goods and services. Tokens on blockchains include currency tokens, utility tokens, and reward tokens. Additionally, these digital assets can also be used as a form of asset management. Here is an overview of some of the most common token types.
They’re decentralised
There are two types of coins or tokens that operate in the blockchain ecosystem. One type of coin is a security token that requires proof of identity, while the other type is a transactional token. Transactional tokens can be used to send and receive money, usually with minimal fees. Governance tokens, on the other hand, can be used to vote for a certain entity. Voting rights are determined by the ownership of a particular token.
They disrupt traditional governance
We are living in an age where digital domain innovations shape our everyday processes and interactions. Yet theoretical frameworks for governance are not evolving at the same rate. As a result, these frameworks lag behind the reality of emerging technologies and fail to provide adequate regulatory solutions. Blockchain is an innovative technology widely viewed as a “swiss army knife” with the potential to solve a number of emerging challenges, such as data ownership and decentralized decision-making.