what are exchange token?
Tokens swap platform development have been around for some time and are currently proving very fruitful as they have been offering high liquidity despite the general stagnation of the global market.
In “blockchain” tokens are units of value, which are transmitted digitally, like bitcoins, and can be purchased, sold or used for exchange for all kinds of goods and services, such as the purchase of cryptocurrency .
Token Transactions
A token is a substitute for a real value, such as a currency or a cryptocurrency. We can compare it to the tokens of a casino or the tokens of an amusement fair, each token or token has an associated value, which can be exchanged for liquidity or for a trip in an attraction.
For example, in a token swap transaction, a buyer wants to purchase tokens with value A in exchange for tokens with value B. This transaction implies that the seller of type B tokens receives a certain number of type A tokens in exchange for the tokens type B. The transaction will carry a minimum conversion rate for both parties. At the time of deciding on said rate, the buyer can consult the exchange rate at the time of deciding to carry out the transaction.
At the time of carrying out the operation, through a smart contract migration , the network consults all the reservation requests and searches for the best conversion rate. Upon finding an adequate rate that meets the minimum requirements of the buyer, the purchase-sale operation will be carried out.
Most of the tokens are distributed through an ICO, which in Spanish is known as an initial coin offering. It is a mechanism to obtain funds for the financing of projects where new projects sell their tokens in exchange for cryptocurrency.
There are few or no restrictions on who can participate in an ICO and with the fact that money is acquired from a large number of investors, the sums raised in ICOs can be astronomical. One of the fundamental drawbacks with ICOs is that many of them receive money before the product actually exists, which makes the investment high risk. On the other hand, this method allows and encourages the creation of products and the development of new ideas.
Similarities between tokens and cryptocurrencies
In short, cryptocurrencies are still a type of token. The pioneers in the world of cryptocurrencies were the so-called ” colored coins “, which were nothing more than bitcoins that included a specific line of code that made them unusable so that they represented a real value which could be transmitted through blockchain .
Cryptocurrencies are the native asset of a specific blockchain protocol, whereas tokens are created by platforms that build on top of those blockchains. For instance, the Ethereum blockchainX native token is ether (ETH). While ether is the cryptocurrency native to the Ethereum blockchain, there are many other different tokens that also utilize the Ethereum blockchain. Crypto tokens built using Ethereum include DAI, LINK, COMP, and crypto Kitties, among others. These tokens can serve a multitude of functions on the platforms for which they are built, including participating in decentralized finance (DeFi) mechanisms, accessing platform-specific services, and even playing games.
There are several widely used token standards for creating crypto tokens, the majority of which have been built on top of Ethereum. The most widely used token standards are ERC-20, which allows the creation of tokens that can interoperate within Ethereum’s ecosystem of decentralized apps, and ERC-721, which was designed to enable non-fungible tokens that are individually unique and cannot be interchanged with other similar tokens. As of 2020, there are hundreds of different ERC-20 tokens and thousands of ERC-721 tokens in circulation. As new tokens are developed to address blockchain’s expanding use cases, the number of different tokens likely will continue to grow at a remarkable pace.
Typically, crypto tokens are programmable, permissionless, trustless, and transparent. Programmable simply means that they run on software protocols, which are composed of smart contracts that outline the features and functions of the token and the network’s rules of engagement. Permissionless means that anyone can participate in the system without the need for special credentials. Trustless means that no one central authority controls the system; instead it runs on the rules predefined by the network protocol. And finally, transparency implies that the rules of the protocol and its transactions are viewable and verifiable by all.
Token Types
Tokens are usually classified into two categories, security tokens and utility tokens.
Security token
Security tokens are those that derive their value from an external good, which can be traded. However, these tokens are subject to laws regulated by governments. Failure to follow these laws can result in fines and penalties.
On the other hand, security tokens can offer a wide range of applications, one of them and the one that offers a better prognosis, is the ability to offer tokens as a digital representation of what the shares of a company would be. Additionally, security tokens give the owner the right to claim their investment interests.
Utility token
Utility tokens are simple applications or platforms based on a blockchain and allow their owners to access them easily. These platforms allow future access to the products or services offered by the company that issues the tokens. So these utility tokens are not intended for investment.
Just as a store can take orders for a product that will be released months later, a startup can create utility tokens and sell digital coupons for products and services that are still in development.
conclusion
Tokens are becoming a key element and their use will continue to spread and become popular in the near future. The trend indicates that the tokens will have an increasingly greater impact in the world of cryptocurrencies.
