Tokens are an integral part of the incentive scheme of permissionless Blockchains. They encourage a disparate group of people who do not know or trust each other to organize themselves around the purpose of a specific Blockchain or decentralized app.
- Cryptocurrencies are fungible stores of value that can be transferred P2P without a bank or any other middle man.
- Object of speculation (Network Economics) – When a token appreciates in value, it draws the attention of early speculators, developers and entrepreneurs. They become stakeholders in the protocol itself and are financially invested in its success. Then some of these early adopters, perhaps financed in part by the profits of getting in at the start, build products and services around the protocol, recognizing that its success would further increase the value of their tokens.
- A Token is needed to pay for usage of the network:- Bitcoin (transactions)
– Ether (computing power)
– Sia (file storage)
Tokens are fuel of network used to reward stakeholders for network services and make network attack resistant.
Blockchain Token can replace traditional organization of a group of people bound together by a legal entity and formal contracts with decentralized autonomous organizations powered by cryptographic tokens (incentives) and fully transparent rules that are written into the protocol software.
Types of tokens
Blockchain Tokens are an entirely new economic concept. Describing new concepts with terminologies from an old system is hard. There are many different ways to distinguish roles and types of tokens. We chose the following: Usage tokens, Work tokens, Asset-backed tokens.