LONDON (Bywire News) - Imagine that you have a coupon which gets you a free drink or you can exchange for real life goods. A digital token works in the same way - it is an asset backed token which represents a specific digital resource that can be redeemed.
Think of them in the same way as chips handed out at casinos, or tickets at fairground rides. Neither are actual currency, but they do have an inherent value and can be used for real world transactions, such as to use a service or to exchange back for traditional currency.
How are digital tokens used?
Digital tokens are often used in crowdfunding such as Initial Coin Offerings (ICO). This is similar to share offerings and are used to fund the launch of a business. You buy tokens which convert to capital for the issuing company.
The idea of an ICO has rapidly gained traction and they are rapidly being used by tech startups to raise capital. For example, Block.one raised the bar for initial coin offerings in 2018 where it raised $4bn, despite its product not launching until June of that year.
Others are used to reward certain actions. For example, shops may reward you with digital tokens as a form of loyalty points. Others, such as games or social media sites, allow you to earn tokens for your activity, such as completing certain tasks on a game.
What are the biggest digital tokens?
Here are a few examples of digital tokens operating in the marketplace now:
- Wirebit: Wirebit is a token created on the EOS blockchain. It can be exchanged for EOS, other cryptocurrencies and fiat currencies. Bywire uses Wirebit to pay readers to consume content. When users read an article, they and the content producer receive Wirebit as a reward.
- Everpedia (IQ): Everpedia is the world’s largest decentralised encyclopaedia. It uses the EOS blockchain and an IQ token to incentivise content creation. This can now be traded on crypto exchanges such as Binance.
- USDT: Tether, also known as USDT, is a stable coin which is linked to the price of the US Dollar. Its price will always be $1 which means it will match the dollar’s rise and fall against other fiat currencies and cryptocurrencies.
- DAPPT: The DAPP network is a community of developers committed to scaling the blockchain. It is creating a breed of decentralised applications which would have previously been impossible with conventional technology. The DAPP token (DAPT) exists as a liquid asset for their products or services and also provides incentives and supports the community.
Are digital tokens a form of cryptocurrency?
Because of their nature, digital tokens are often confused with cryptocurrencies and altcoins. You’ll often see major cryptos such as Bitcoin described as tokens which can further muddy the water. However, to clear the confusion you can simply think of it in the same way as the difference between physical tokens and traditional money. While you can exchange a token for money to buy stuff, you can’t usually purchase goods on the open market with them.
The same is true with digital tokens. You may be able to redeem them for services delivered by the organisation which gave you the token, but you will be unable to use them to buy things directly.