There are different ways to differentiate between tokens. Some of them are outlined below. Please note that Crypto Economics is so new that we are still exploring different roles and types of tokens in the early stages. With every new Blockchain and every new application layer, we will collectively learn by trial and error what works and whatnot.
- Usage tokens: A token that is required to use a service. Bitcoin and Ether are the best examples of usage tokens — token ownership does not give you any specialized rights within the network. Still, it does give you access to the Service (the Bitcoin payment network and the Ethereum Virtual Machine in the case of BTC and ETH). Scarce tokens combined with a useful service can create massive value for token holders and entrepreneurs.
- Work tokens: A token that gives users the right to contribute work to a decentralized network or DAO (whether on blockchain level or smart contract level) and earn in exchange for their work. That work can be serving as an oracle (in the case of Augur), being the backstop in a collateralized debt system (in the case of Maker), or securing the network (in the case of Ethereum when it switches to proof of stake).
These two types of tokens are not mutually exclusive, and some tokens serve as both: usage tokens and work tokens. An example of a token with both characteristics will be ETH when Ethereum transitions from proof of work to proof of stake. Another way to differentiate between tokens is:
- Intrinsic, Native, or Built-in Tokens of blockchains like Bitcoin, Ether, etc., that serve as (a) block validation incentives (‘miner rewards’); and (b) transaction spam prevention. The logic behind this is that if all transactions are paid, it limits the ability to spam.
- Application Tokens with Ethereum tokens can now easily be issued on the application layer through smart contracts on the Ethereum Blockchain as so-called complex dApp tokens or complex DAO tokens.
- Asset-backed tokens that are issued by a party onto a blockchain for later redemption. They are the digital equivalent to physical assets. They are claims on an underlying asset (like the gold) you need to claim from a specific issuer (the goldsmith). The transactions as tokens get passed between people are recorded on the blockchain. To claim the underlying asset, you send your token to the issuer, and the issuer sends you the underlying asset.
Tokens can represent any asset
- An hours worth of rooftop solar energy
- A currency such as s dollar, euro, rupee, or GBP
- A promise for a product in a crowdfund
- A future download of a song from your favorite artist
- An insurance policy
- A ticket to an event
Tokens can be used as
- Token of ownership
- Voucher to redeem for physical items on platforms that only permit the sale of digital goods.
- Software license
- Stock certificates
- Access rental cars or other vehicles
- Ticket or access pass (party, concert, amusement park, etc. )
- Automated road and bridge tolls
- Access recording studio time, online game, a webcam, a wifi hotspot, to open a locker or storage unit, to access online storage
- Customizable memberships or subscriptions
- Pay per use exercise equipment
- Rewards program
- Financial Instruments
- Bond issuance
- As a system of voting
Blockchain tokens embody the full potential of blockchain technology. For blockchains to unfold their full potential concerning reinventing ownership in the digital realm, the technology needs to be recognized de lege ferenda as a system capable of creating an objectively new ontological category. It is a new kind of thing that deserves its own regulatory framework that reflects blockchain technology’s unique affordances and constraints.
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