A token is an accounting unit which is used to represent a digital balance in a specific asset. Tokens accounting is carried out in a ledger based on blockchain technology, and they are accessed via special applications using electronic signature schemes.
What types of tokens exist?
- Equity tokens are some company’s shares.
- Utility tokens stand for some value being a part of some online platform’s business model (reputation, points for some actions, or game money).
- Asset-backed tokens are digital obligations for real commodities or services (kilograms of carrots, the builder’s hour of work, etc.).
What is a token backed up with?
Exclusively asset-backed tokens are directly secured. In this case, a token is a digital representation of a real (physical) asset or service. Say, one token can be equal to one square meter of living floor space or one ticket for a movie. The company, which stores goods or provides services, guarantees token conversion into some physical assets.
What is asset tokenization?
Tokenization is a process of assets accounting and management transformation, in which each asset is represented in the form of a digital token. Creation of digital counterparts for real values, aimed at their quick and safe handling is the essence of tokenization. Let us look at the example as follows: a bakery shop owner creates an electronic accounting system in which they emit digital obligations for their buns – tokens. Having a fairly good reputation, the bakery shop owner can conduct an advance sale for their buns, selling tokens on some Internet trading platforms. Consequently, any tokens owner, having acquired them beforehand, can come to that bakery shop and exchange one token for one bun.
What is the difference between a token and a cryptocurrency?
Unlike cryptocurrencies, tokens can be emitted both centralized (controlled by a single company) and decentralized (controlled by a predetermined algorithm). Transaction processing and acceptance procedures can also be centralized (one company controls all servers). Tokens price assessment is dependable on the supply and demand balance and some additional aspects like linking to some external asset, emission, or reward conditional rules). Besides, unlike cryptocurrencies, a token does not have its own blockchain.
How to buy tokens?
You can buy tokens through online trading services, like exchange platforms, or by conducting personal transactions when a buyer and a seller make reciprocal agreements. The token trading process itself is identical to cryptocurrencies trading. Furthermore, token emitters often embed traditional electronic payment systems in their websites, providing additional possibilities of buying tokens.
Where are tokens stored?
Tokens are much like cryptocurrencies when it comes to their transfer and storage procedures. Specialized purses are used for this, providing storage services and keys processing solutions, as well as transactions generation and signing. As a rule, tokenization platforms include such applications in their infrastructure.
What are the tokenization advantages?
- It accelerates trading processes, requiring no real assets movement or preparation of property rights documents.
- It increases storage and transfers security, recording transactions into blockchain ledger technology.
- It removes the necessity to trust intermediaries, as a smart contract can describe their participation or they can be excluded from the transaction processes at all.
- It increases the platform’s infrastructure functionality and extends it, adding additional modules (multi-level authentication, invoice generation, regular payments, and refill cards).
- It improves ease of use, as many platform features can be integrated into a mobile application user interface.
What are the blockchain advantages in the tokenization process?
- A reliable database arrangement (data integrity and reliability are verified during each next system condition check).
- There is no single point of failure due to decentralization (a number of independent servers process and accept transactions).
- A reliable audit management (the auditor verifies the entire history of changes on the platform to estimate their correctness).
What are tokenization risks and issues?
– Users may lose personal keys or hackers may steal them. Such a misfortune cannot be anyhow predicted or insured.
– It is a difficult task to ensure confidentiality in public blockchains, as any transactions verification process requires their data openness.
– The scaling process is a complex task within a decentralized accounting system, as a decentralized ledger has a tight processing capacity restriction.