The Future of Crypto Tokens in 2021 and Beyond
Cryptocurrencies are getting increasingly popular as the days go by and really show no signs of slowing down. These days it seems even the biggest corporations such as JPMorgan and banks like Citi are already making provisions for it. As adoption increases, so do new entrants.
As one would expect, the acceptance, adoption and support of cryptos and blockchain projects continue to rise. So, if the only coins you know are the classic Bitcoin, Ether and Litecoin, you might want to keep an eye on interesting newcomers like PolyZap, Dfinity’s Internet Computer (ICP) and the recently launched LowOrbit.Finance (LOCC) which is unique in that it has a total supply of just 1000 tokens.
What are Coins and Tokens?
There is a common misconception when it comes to two of the most popular crypto-related terms, namely, coins and tokens. Hence, to overcome this misconception, it is necessary to know the differences between coins and tokens.
A coin has a native value to the blockchain network and can be thought of as a top-level digital asset. For example, the Bitcoin blockchain’s top level is BTC, whereas Ethereum’s blockchain’s top level is ETH. Both of these are coins. A ‘token’ is an underlying digital asset that is built/coded on a supporting blockchain platform. You can think of this as the app store on your phone, where you have Apple as the ‘coin’, and all the apps as ‘tokens’. Bitcoin (BTC), Ethereum (ETH), XRP (XRP) and Cardano (ADA) are some of the most adopted coins in the crypto market by total market cap.
Many startups and SMEs have started utilizing the advantages that blockchains such as Ethereum offer in the way of smart contract functionality. In recent times, a new token standard has been adopted to promote sub-level fungible tokens over the Ethereum network, called ERC-20. Fungible meaning that all coins or tokens are equal to the others in circulation. Another token standard on the Ethereum blockchain is ERC-721 tokens which are non-fungible tokens or unique 1 of a kind tokens.
An example of one such token developed based on the ERC-20 protocol is the LOCC token by LowOrbit.Finance.
It is a deflationary DeFi token with a single asset staking pool where participants’ Ethereum wallets are essentially turned into draw entries to win all the collected fees. Tokens such as this are maintained by powerful and efficient smart contracts on the Ethereum blockchain.
But why the Ethereum protocol? Simple. It is known for its smart contract functionality. Smart contracts are logics that are coded into the blockchain network that eliminates the need for third parties and helps in automating and decentralizing business processes with unchangeable code.
The tokens present in smart contracts represent the utility and assets that are present in the respective blockchain. In an Ethereum network, each token is managed by unique governing contracts that manage the transfer and tracking of the token’s values.
The Future of Crypto Tokens
When it comes to tokens, there are 1000’s upon 1000’s of them. Various subfields of tokens can be thought of in the following categories – security tokens, payment tokens, equity tokens, and utility tokens which is a type of governance token according to the roadmap on their website.
- Security tokens – Most of the tokens issued by ICOs are security tokens. The person buying these tokens basically invests in the ICO with the expectation of profit. This used to be the most popular type of token a few years back.
- Utility tokens – Utility tokens provide users access to products or services. For instance, Low orbit crypto cannon which was recently listed on Coinmarketcap allows its users to participate in some sort of e-trading and smart contract trigger on its protocol. Each participant stakes a minimum of 0.0055 LOCC to stand a chance of being airdropped the fees collected for that round or trade/transaction locally called “propulsion wave”. The winner, called “staking astronaut” is randomly selected via open-source code after every 276 ETH blocks.
- Equity tokens – Equity token represents the stock and equity of the company that provides these tokens. Put in a simpler way, the company sells you a piece of them and this typically happens at the earliest days of the project.
- Payment tokens – Payment tokens, as the name suggests, are used to pay for goods and services, and are mainly just a transfer of value.
Out of the above-mentioned tokens, the service and utility tokens are more likely to revolutionize tokens the most. Security tokens provide secure interactions on the blockchain network infrastructure. Startups issue security tokens in the form of ownership shares for fundraising purposes. Unless there are any regulation issues, the security tokens will become the new form of funding model in the future.
Security tokens, apart from being faster, easier and simpler, it has various other benefits as well. Since the tokens are digital, they can be easily traced and the transaction costs are very low. These tokens enable partial ownership without any overhead costs. Because of these benefits, many companies will be issuing security tokens rather than shares and this is to be considered as the new form of equity.
As mentioned earlier, utility tokens provide the user with access to applications or services. It is important to know that, unlike security tokens, utility tokens do not hold any rights to profits or other financial benefits. One of the clear examples where utility tokens play a major part is the blockchain-based marketplaces.
Here, based on the marketplace transactions, the app and the token maker will rely on an increase in token value to gain profits. Some of the key advantages offered by utility tokens such as incentive alignment, low transaction cost and powerful network effects.
In a Nutshell
Since these tokens can be globally distributed, they will have a major part in the widespread adoption of blockchain technology and cryptocurrency in the upcoming years. It is found that more than 40% of the world’s population uses some type of cryptocurrency.