what is a token?

A token (“tokens” in English) is a physical or digital object that represents value or utility for a given community or in a given environment , regardless of whether or not it has that value due to the material it is made of. It depends, therefore, on the consensus among those who participate in that group or context who agree to recognize its value.

In short, tokens represent something else. In commercial and financial operations, there are many reasons to use objects that replace the original, such as digital tokens, because of the convenience of transporting them , the ease of transferring them and their extra layer of security that does not expose them to information or its underlying asset.

Evolution of the concept and use of tokens

The use of tokens or tokens not only predates cryptocurrencies, it also predates fiat currencies around the world . In ancient Rome, metal tokens were used as entrances to brothels. Also, medieval monasteries paid for repairs and other services with tokens. During the 17th and 18th centuries, trade between the United States and the British Empire was also carried out using vouchers.

But even after official money appeared, tokens continued to be used in specific fields. Those for transport, called “cospeles”, were worth a trip; and those for parking lots, video game machines and casinos are still used today, always for the same reason: they represent value or utility within an environment or for a given community.

Now, with the development of computing and the internet, digital tokens are becoming more popular and frequent , ranging from video game items or credits for digital platforms, to 2FA security tokens that allow you to use apps or QR codes that are becoming common in movie tickets, concerts and sporting events.

However, the most revolutionary types of tokens today are crypto tokens.

‍ The crypto ecosystem tokens

In the blockchain world, the most typical products, such as cryptocurrencies and NFTs , are tokens with value or utility in each community or project. In fact, NFT is the acronym for “non-fungible tokens” (single and indivisible, like music or paintings), while cryptocurrencies are fungible tokens.

In the crypto ecosystem there are many different types and uses of tokens: some serve as tickets, others as vouchers and others represent some asset. Some have economic value and some do not, but they offer some utility. There are those who have specific functions and those who fulfill almost all functions at the same time.

All of these tokens are generated from a programming code written in smart contract format and are used in blockchain networks , and can function as entry tickets, attendance vouchers in an assembly, digital money, collectibles or as a means of exchange for others. crypto products or Web3 service.

For example, the Ripio Coin (RPC) is a token that has economic value, but which also has a use for Ripio users: getting discounts on commissions when operating on the platform.

Difference between tokens and cryptocurrencies

Although they are all tokens, in the crypto ecosystem the concept of token is used for those that work on another blockchain or on a pre-existing one , such as stablecoins USDT and DAI or altcoins such as SHIBA (Shiba Inu) and UNI (Uniswap) , that run on the Ethereum network.

On the other hand, tokens that run on their own blockchain are designated with the more specific concept of cryptocurrencies , as is the case with Bitcoin (BTC) , Ethereum (ETH) , Solana (SOL) and Cardano (ADA) .

The tokenization of assets via blockchain

Crypto tokenization allows the representation of physical or digital assets through the creation of tokens , usually on a network, which is also a database, known as a blockchain. This technology, which is the same that makes cryptocurrencies work, ensures the reliability and immutability of the data associated with the token , such as its authenticity or who it belongs to.

It is noticeable, particularly in the case of NFTs (non-fungible tokens), how they are transforming notions of ownership and asset management . One example is how these tokens allow digital artists and content creators of all kinds to turn their work into tokens or packages of digital data that can be sold with greater liquidity. But there are all kinds of use cases for NFTs.

On the other hand, that same artist could create fungible tokens to reward his community of followers, grant access to some premium content or special event, or allow his audience to vote to choose the theme of his next video. He could even offer another type of crypto token, POAP, as proof of attendance at his event .

For other areas, such as sports , there are also Chilliz Fan Tokens , which are fungible tokens that represent everything from fanaticism for a football club to NFT collections of legendary NBA plays.

The possibilities in the crypto ecosystem are very wide, and new protocols that allow different types of tokenization are being added all the time, such as soulbond tokens, a type of non-transferable token being promoted in Ethereum.

What can be tokenized

One area where tokenization is being revolutionary is real estate, buying and selling property. In addition to the number of properties and land for sale, their prices are high. On a country scale, only a few thousand real estate transactions are completed per year. The use of tokens allows solving this major liquidity problem.

For example, it can be difficult to find a buyer for a 40×40 meter plot (1,600m²). But dividing this land into 4 lots of 10×40 (400m²) to make it cheaper and to be able to sell them means having to do more formalities and payments, which is also not convenient. Tokenization allows both fractionalization of ownership and proof of ownership , allowing, for example, the creation of 1,600 tokens, each representing a square meter of land. Thus, those interested can buy 1m², 8m², 543m² or 1,600m².

These tokens could then be resold to other buyers , if demand increases, or be traded on an exchange . Or owners could keep the tokens and collectively participate with other co-owners in making decisions about land use and fate. Still, they could present the tokens as proof of ownership to access loans or use them as collateral in a DeFi service .

This is just one usage example, and while the ecosystem is still emerging, the possibilities seem endless. It is now possible to tokenize traditional assets, such as bonds, houses, investment fund shares, and other more exotic things, such as sports teams, works of art and social media profiles.