Token is a digital balance accounting unit for a specific asset. Being a substitute for money, it is written in the blockchain. Tokens became widespread was due to the Ethereum platform. Let us look at the most frequently asked questions about tokens.
Is token backed up by anything?
This possibility exists only for asset-backed tokens. This is a decentralized digital money system. Its peculiarity is that the coins have an equivalent in the real world. These can be the goods or services (a sack of potatoes, an hour of a janitor’s work and so on). Tokens are issued by a certain organization, project or startup. They (organizers) also guarantee the provision of coins, having a declared list of products and services.
What does the term tokenization mean?
The process of converting the organization assets to digital tokens is called tokenization. This is necessary to assign digital value to real objects. Thus, the fast and safe work is done, and the manipulations become simpler and more universal.
Let us give you an example. The owner of the workshop on sewing jeans transforms the obligations to pants of denim to digital tokens. If the clients trust him, they will buy electronic tokens on the Internet portals. When they come to the in-shop store they will be able to exchange a token for brand-new jeans. The owner has an opportunity to pre-sale, serve the customers faster and plan tailoring for the future.
What is the difference between a token and a cryptocurrency?
Emission of tokens can be managed by a certain organization or by a pre-configured algorithm. Consequently, the control system can be centralized and decentralized. The same applies to processing and conducting transactions. The main principle of cryptocurrencies is the lack of a unified control system. This is the first distinctive feature.
The second feature lies in the different schemes of coin price formation. Cryptocurrency depends entirely on the demand level and the degree of user confidence. And the token is bound to a number of additional conditions, such as an external asset, emission order and so on.
Tokens do not have an independent blockchain system unlike the cryptocurrencies.
How to buy tokens?
Tokens are available for purchasing on exchanges and in exchangers. Private transactions between the buyer and the seller are very common. The parties agree on the terms separately. The token circulation mechanism is no different from that of a cryptocurrency.
If the token is put up for sale to attract investment, the process is called ICO. Sometimes the possibility of buying is already built in the menu of the website where the project is presented.
What is the better way to store tokens?
The platforms involved in implementing tokens, offer the services for storing them. They are very similar to standard cryptocurrency wallets. The list of basic options is as follows: storing and processing the keys, forming, conducting and recording the transactions. Technologies allow making storage of tokens more convenient and safe.
What are the disadvantages of tokens?
The main problems of tokens are the risk of losing keys, the complexity of privacy settings, limited bandwidth. All of them are related to the fact that the tokens work on the basis of public blockchains. The databases are always open, but they cannot handle large information flows simultaneously. There is no way for you to insure yourself agains theft or hacker attack. Having lost the personal access code, the user will not be able to restore access to his tokens.