Crypto Academy Season 3 Week 8 - Beginner's Course | Understanding Tokens|| homework post for professor @reminiscence01 written by @ruggedangel

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INTRODUCTION

I welcome you all to SteemitCryptoacademy season 3 week. Professor @reminiscence01 has impact knowledge to us through his wonderful lecture. Its really benefitting. Below is my homework post.

1)What do you understand by Token and give an example of at least 5 tokens and identify the blockchain it is built on. ( give at least 3 different Blockchains)

In the Cryptocurrency landscape, Coins and Tokens can mean the same thing or are the same and are most times used interchangeably. However, due to the efforts required in the development of a blockchain technology in which coins are created from, tokens are created from crypto projects whom employ the use of existing blockchains to help run their projects.

A Token is a cryptocurrency which represents an asset and can be used for a specific purpose. They are regarded as crypto assets and have a specified value that can be traded or act as utilities on the blockchain that they are built upon. Most times tokens are created, sold, and distributed through a standard Initial Coin Offering, ICO process by a crypto project to use as a means of fund raising to run their projects and can be exchanged for other things. Tokens are also used as an investment instrument through storing of value or making purchases of other crypto tokens. The investors who invest in these tokens can decide to hold onto these tokens as a means of staking in the project for economic reasons or directly using it for purchasing goods and services. The tokens can also serve as governing tokens which increases an investors voting rights.

Most of the new crypto projects which are tasked with providing certain services through cryptocurrencies are denominated in the form of tokens. This happens because of the difficulties associated with creating a new blockchain which also affects the creation of new coins. So projects makes use of existing blockchains to build their projects and also token along with it, which can be useful for the crypto project. Crypto projects are simply systems that makes it possible to run secure transactions online through the use of blockchain and are denominated in tokens. If a crypto project is built on the Ethereum blockchain then the token built on this blockchain would make use of ERC-20 system that enables it to perform transactions. This is made possible because the existing blockchains which these new crypto projects are built on use concepts know as Smart Contract and Decentralized Applications (dApps), where a programmed code which is self executing is used to process and manage different transactions that occur on the blockchain.

For instance, a new crypto project can build a new crypto token which is then assigned a certain number as a customer's loyalty point on the blockchain which it is built on for a retail company. A crypto token can be used to represent a cryptocurrency, like a crypto token being equal to 50 TRX and is run on the Tron blockchain.

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Five Tokens and the Blockchain it is built on

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There are a lot of tokens which are built on existing blockchains today. But i would be giving a list of only 5 tokens and the blockchain they are built on.

S/N	Tokens	Blockchain built on
1.	Tether	Ethereum
2.	USD coin	Ethereum
3.	FTX Token	Binance chain
4.	Uniswap	Ethereum
5.	Bittorrent	Tron

2)What is the difference between a token and a coin?

Even though both terms can regarded as a cryptocurrency, a token is different from a coin because of how they are created and the purposes to which they are created for.

A Coin is the local currency that accompanies a newly created blockchain or an already existing blockchain, which is primarily used as a payment service on the blockchain. A prime example of a coin is bitcoin btc which is the coin used in the Bitcoin blockchain, another example is litecoin ltc which is used in the Litecoin blockchain. These coins are used as fees for carrying out transactions on a blockchain and for payment of goods and services.

On the other hand, Tokens are programmable assets which are created and built on top of an existing blockchain. This blockchain acts as the means by which smart contracts and decentralized applications are executed. The tokens can also be used to make payments and facilitate transactions. It also grants users and investors right to the crypto projects.

However, it should be of note that a token and a coin are very similar as they represent values which can be tradable or exchanged as digital assets and can also be stored for future uses.

3)Explain the different categories token listed below and explain its features.

• Utility tokens
• Security tokens
• Equity tokens
• Non-fungible token (NFT)

In the crypto currency industry tokens are categorized based on their use cases and functions. These categories of tokens are brought about because of the purposes which a crypto project want to achieve. They are put in different categories to help clear any ambiguity regarding the tokens when in use. I shall be presenting each of the different categories of tokens in this exercise.

Utility Token

A Utility Token is often the token that a crypto project issues to the public during a Pre-Sale or an Initial Coin Offering ICO. This is done in order to push the crypto project. It is a type of token that is used to finance or capitalize crypto startup, projects, or companies.
What happens is that other cryptocurrencies like USDT, BTC are deposited into the project by an investor to gain the utility tokens of the crypto project. As this happens, the investor automatically has a stake in the new crypto project and depending of the amount acquired, has voting rights in order to participate in the decision making in the crypto project. These tokens are acquired by prospective investors at their early stages, during pre-sales and ICO, as the investor believes that the project would succeed in market, thus yielding profits for themselves. But utility tokens are not to be seen as investments, as many countries don't yet have the regulatory framework for them. Crypto projects can also use utility tokens to create coupons during promos which are to be redeemed at a later time. They sometimes do this as a strategy to use and finance their projects. During the ICO process, the developer of the crypto project announces the issuance of a given amount of tokens. This is known as making a Call to an ICO. Examples of utility tokens includes Basic Attention Token (BAT) which runs on the Ethereum blockchain with the code ERC-20 and allows users to access various BAT services. Another example is Golem Token (GNT) which makes users of the tokens to rent computing power that is made available to them. They can be traded or exchanged and used for the purposes of buying and selling. Utility tokens should not be seen as investments as they are not security tokens.

Equity Tokens

Equity Tokens are created as a way of representing a share of a crypto project. Anyone who has an equity token is going to receive dividends when the crypto project makes a profit. When an investor owns an equity token for a new crypto project, it is like owning a stock of the crypto project. This is akin to having a portion of the company's underlying assets. Equity tokens are very different from stocks in that the transactions are recorded on a blockchain which is faster, transparent, where the data cannot be changed and not on an ordinary database. Owners of equity tokens also have rights to vote on the future of the projects. What makes an equity token significantly different from traditional shares is the method in which the property is registered. While a traditional stock uses a database for registration and accompanied by a paper certificate, an equity token is registered and then recorded on a blockchain. As blockchain technology emerged, companies and crypto projects tried to model an Initial Public Offering IPO which are used for stocks, to a new way of operating. Equity token were then created for this new operating model to happen. These equity tokens are a representation of ownership of an asset though on a blockchain. With equity tokens shares and voting rights can be issued by crypto projects on a blockchain.

Security Tokens

Security Tokens were created to represent traditional financial asset such as stock, bonds, options, swaps, futures, shares. Blockchain technology digitized financial assets and equipped them with more advantages which can be seen in reduced cost, time and bureaucracy.
With security tokens the gap between traditional finance and cryptocurrency is bridged and it allows investors to have a proportional amount of a company's share through cryptocurrency. Like stocks and bonds, the value of security tokens are derived from an external asset that can be traded. Federal laws governs the the tradeable asset.

Security tokens emerge or goes with assets techniques like participation in actual physical basic gaining streams, payment of interest entitlement and dividends

Dividends that are paid out to security token holder are usually in the form of additional tokens anytime the company issuing the security tokens earns a profit. Investor who owns security tokens of a certain crypto project have a part ownership of the company that issued the security token.
In economic sense, security tokens can function as equities, derivatives and bonds. They are known as Securitized Tokens. A token has to pass the Howey Test before it can be recognized as a security token. The supreme court determined that the Howey Test should be conducted to ascertain if specific transactions qualify as "Investment Contracts". Howey Test is a process which makes one to test if an economic action is an investment contract or not.
Security tokens also goes through an ICO, because companies use this way to raise capital by selling shares of the company but instead of shares given out, security tokens are given out. The cost this process takes would be lower than what the security token can be worth in the future.

Non Fungible Tokens (NFTs)

Non Fungible Tokens (NFTs) are by design made to be unique and function as a collectible. The collectible could be in the form of art work, meme, videos, merch, film etc. Depending on the form it is created in it cannot be replaced. It is not like other crypto tokens like tether, uniswap etc. where you can trade one token and get an equivalent of the same token or another token because these tokens are fungible. Some NFTs are being derived from the Ethereum blockchain. NFTs can duplicated so many times, but it is only one owner who created the work, and the work can be bought by anyone even at insane prices. NFTs represents real world objects, the ownership and their characteristics in digital form on a blockchain through a smart contract. Examples includes a digital card of a famous sport figure, which is a collectible and is in limited supply and is given unique digital markings.

4)Make your own research and write extensively on any token you listed in question one. (Must include features of the token, the aim of the project, Use cases).

Tether (USDT)

google

Tether is a stablecoin and has the symbol USDT. Tether came into the market in July, 2014 as Realcoin then later changed it's name to Tether by Tether Limited (the company responsible for maintaining the reserve amount of Fiat currency) in November, then started trading in February, 2015. The company is a private company and is based in Hong Kong, and it issues tether as tokens.
The tether tokens are in circulation and are backed by an equivalent amount of fiat currencies such as dollar, euro, yen, British pounds etc. which are held in designated accounts. Tether the third largest cryptocurrency with a market capitalization of just over $64B. Stablecoins functions differently from traditional cryptocurrencies as the price of stablecoins do not fluctuate due to market forces. The value of tether tokens is tied to the US Dollar, hence the symbol USD.T. Tether tokens are not mined like regular cryptocurrencies and are not decentralized in nature as they don't run on blockchains, but are issued in response to the demand for the tokens from users. Because of it's characteristics as a stablecoin, tether can be used as a medium of exchange and also as a mode to store value as opposed to speculative purposes. Investors prefer tether tokens when trying to avoid cryptocurrency volatility while at the same time keeping value within the crypto market. Tether tokens belongs to the category of Fiat-collateralized stablecoins, as the tether tokens are backed by Fiat currencies and the company makes use of Fiat currency in it's reserve as collateral. Tether was created to act as a bridge between Fiat currency and cryptocurrency and also offer other benefits such as stability, transparency, and low transaction charges to users.tether token can be exchanged immediately for other cryptos and also it can be sent to any crypto exchange wallets around the world.
Tether tokens cannot be exchanged for Fiat currency. Tether issues it crypto tokens on different blockchain platforms. Tether tokens for US Dollars are Bitcoin blockchain (Omni layer and liquid protocol), ERC-20 for Ethereum blockchain, TRC-20 for Tron blockchain, EOS, Algorand, SLP and OMG blockchains. Same can be applied to other recognized Fiat currencies.

Features of Tether Tokens (tether USDT)

These are the features of Tether tokens:

• The value of tether is always equal to $1. This is a strong factor in making tether to be useful for storing value and also for the transfer of value.
• Tether tokens are backed by Fiat currency, which serves as collateral. They are not mined.
• Tether tokens can be used on multiple blockchains.
• They can be traded for other cryptocurrencies.
• They have the capacity to be stored on different wallets because they work on different blockchains.
• The fees derived from transactions involving tether are paid in the currency of the blockchain being used. If you are transacting on the Ethereum blockchain, you would pay ether which is the gas fees.

Uses of Tether Tokens

The use cases of tether are largely drawn from the short comings of trading cryptocurrencies using other cryptocurrency assets which are very volatile in nature and risky or normal currencies like dollar, euro etc.

Here are their uses:

• Tether tokens are used as a means of liquidity in the cryptocurrency market.
• They help protect against high volatility experienced in other cryptocurrencies.
• It is also used by investors who do not have access to USD bank accounts.
• Trading done with tether are done with lower fees.
• Traders can also covert other cryptocurrencies to tether and use it as a means of storing value.

Aim of Tether tokens

The aim of tether is to make the process and execution of trading cryptocurrencies easier and cheaper. It also aims at making user make use of tether as a means of storing and exchanging value.

IN CONCLUSION
I really appreciate prof. @reminiscence01 for his lecture about understanding tokens. We all know that token are for investment purpose. It can be used in storing of values. Is very important for one to learn to understand what tokens are and how to make use of it.

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Thanks for going through my post
CC:
Professor @reminiscence01