Not All Cryptocurrency Is Created Equal
For cryptocurrency, what we understand by the term “token” is truly best described as the surplus of some sort of account. Though maybe most significant, it is a stability that can really be defined as anything its founder wants it to mean. Currently, cryptocurrency tokens have been made to interpret a user’s reputation inside of a system, a deposit in US dollars, a number of files that are saved in it (filecoin) and the balance in some internal currency system such as Bitcoin.
Because of this, it has been said that tokens don’t even exist – mostly because those individuals who believe differently want to bring attention to the fact that they always have a very specific meaning.
If we want an analogy, tokens can change everything that we are accustomed to seeing in paper form – including shares, and money and promissory notes – digital. Yet the terms we will use for these things will remain unchanged (shares will still be shares). The fact that crypto assets are stored in a decentralized accounting system, or require digital signatures, doesn’t change their meaning or value.
As such, the problem that is emerging isn’t with the actual terms themselves, but that people have begun to assign attributes to tokens that they can’t possibly have.
There are people who claim that cryptocurrency tokens are something entirely new – and that projects that issue tokens can become amazingly transformed.
Sadly, that’s not the reality.
Tokens and tokens
In computer terminology, the term “token” has long meant one of two things: a gadget that can authorize a user (such as a dongle or a special thumb drive), or a fixed array of symbols that identify a user (such as an API key).
In both situations, tokens can pass between different owners. So, how are cryptocurrencies different from the tokens we know?
Generally, the term “crypto asset” means one of three different things:
A cryptocurrency with decentralized issuance and transactions.
A digital asset, issued into a decentralized system and secured by either someone or something. This version can be split into two further subdivisions: either the accounting system isn’t trusted; or the issuer isn’t trusted.
Something that’s both issued and validated by the same organization, yet not backed-up by anything.
PayPal manages digital balances and transaction processing independently and non-transparently. This implies that its users must have implicit trust in PayPal, in order to be able to use its systems.
Bitcoin handles processing and transaction processing entirely transparently, and in a completely decentralized way – because people would not trust an anonymous system under any other circumstances whatsoever.
Tether handles processing entirely transparently, but users must trust that it is conscientiously issued.Any centralized land registry requires that its users trust it in aspects of correctness of accounting – however, there are no concerns on the question of issue.
Types of tokens
A token can fulfill either one or several of the following functions:
A currency, used as a payment method between 2 or more partners.
A digital asset (a digital right – to land ownership, or tomatoes in a warehouse, and similar assets).
A way for accounting (number of API-calls, volume of torrent uploads).
A stake (share) in a particular start-up.
A way of satisfying main players (the best example is bitcoin).
A way of stopping attacks (such as commission within the bitcoin network).
Payment for using a system.
Although because there are various options it may be difficult to distinguish any particular token; they are often a cross between shares, an internal currency, and accounting units.
Tokens that are directly linked to shares in a company, for instance, don’t need further consideration; they are completely identical to shares. More complex are so-called “utility tokens.”
Let’s remember, this kind of token is used as way of making internal payments – yet their price can rise due to limitations in their issue, and due to rising demand. It’s precisely due to this dual functionality that it’s hard to define exactly what they are. Sometimes they behave on markets as though they are shares, yet regulators treat them as accounting units.
Alongside this, people can sometimes use these to make payments to each other.
A solid definition for “utility tokens” is the one put forward by Vladimir Dubinin. He analyzed the pre-sale of tokens with the sale of government bonds in US dollars. These bonds are denominated in the national currency, and proceeds from them will be paid out in that currency as well.
These bonds, it seems, will be sold at a substantial price break, but if they go well, the currency rate might rise very fast.
In this light, we should not overlook that no nation whatsoever is interested in seeing its currency becoming too pricey because this leads to a slow economy and has a negative impact on the balance of payments.