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SFM Labs - Tokens and Coins

Updated: May 1, 2022

A quick disclaimer upfront: All information given in this presentation is researched and intended to be educational and illustrative to the specific topic as always. Any companies, products, people, or other items mentioned do not constitute an endorsement, recommendation, or relationship. Every owner has to do their due diligence, as the decisions and responsibility about any investment lie with the owner. This is no financial advice.

What is a Token?

In its simplest form, a token stands as a term for cryptocurrency. It describes all cryptocurrencies except Bitcoin and Ethereum, although these could also be referred to as tokens on closer inspection.

Tokens themselves can describe one of five forms of cryptocurrencies:

1. Tokens and the general trading of cryptocurrencies.

A token can represent any cryptocurrency for trading or exchange. This could be any cryptocurrency

2. Tokens and the use in applications and financial platforms in Defi

A token may represent a commodity for trade to represent applications, financial functions, or trading platforms in the DeFi platform. Thus, the token itself could be considered a means of representing influence in a financial system if one exchanges some of one's original currency for the token and thus holds a share of liquidity represented by the new token

3. Tokens for the use of governance

A token can be used as a means of granting voting power to influence decisions of a projecting or DAO (decentralized autonomous organization). Thus, holding certain cryptocurrency could lead to having voting rights when receiving additional currency, which, through the number of tokens collected, influences the right to have a say within a community and thus the outcome of decisions

4. Tokens for NFTs

A token can also be represented in the form of NFTs (non fungible tokens). Thus, a platform that uses tokens for the benefit of acquiring, mining, or representing NFTs could use them as a means to an end to enable the trade of unique art.

5. Tokens as shares of a company and as securities.

A token may also be used as shares of a company or as a security. In this case, the company issues bonds or securities in a replication to reality in the crypto market and allows a buyer to have it as a certificate for his company share or value share in a property by purchasing the currency.

What is a Coin?

A coin is an independent currency. Similar to a token, it is a cryptocurrency, but it is associated with a specific blockchain, which is the basis for the use of that coin.

Unlike a token, a coin represents a specific function. This can also be used as a decision-making aid or for the basic management of financial systems, but the benefit is more clearly defined here. The coin representing any system is mainly used for work and is not primarily a commodity. It can serve as a store of value, but because of its specific use, it is determined by the success of the company or project in the long term.

Basically, a coin is taken as a store of value on a blockchain, since the trade with the offered currencies, units or similar runs via the coin and thus also takes the basic value of the trades as a guideline for determining its value. Trading between the coin residing on a blockchain and other coins can also take place if there is a connection or trading agreement between the respective networks. This is then expressed in a pairing, usually there is then also the possibility to buy the coin of one blockchain on another. This is possible through a bridge.

Some companies use crowdfunding or similar before launching their blockchain to ensure money for the initial use of the coin. In an initial coin offering (ICO), the coin to be financed is offered on another blockchain (usually in the ETH network) and the base value to be achieved is financed with it, which is then subsequently transferred to the company's own blockchain and then determines the base value of its own coin in the form of liquidity. At this point, the coin is - until the own blockchain is completely launched - a digital token on another blockchain.

Relation between a Token and a Coin

All tokens and coins are considered cryptocurrencies, no matter what exactly they exercise. The more specific purpose of each token or coin is clarified in the subcategory, but each has its own determination. You can buy a token with a coin, but not the other way around, because the coin usually describes and exercises the use of a project and does not act as a commodity (exceptions always exist, but are very rare).

A token can be converted into a coin if it is migrated or transferred to a newer blockchain, but it should be noted that the token that is converted still exists, even though trading may be suspended. The coin would then take over the functions, but a fork is then usually created for trading, which is to function as a means of trading.

Another variant is the incorporation of a token alongside a coin, whereby the coin performs the basic function of projecting and the token retains the same activity. This is called crypto cofunction and is based on the simultaneous use of token and coin.

Future outlook for the development of Tokens and Coins

The system of functions in tokens and coins is rigid and firmly anchored. there are few variables where one could innovatively change something about the basic principle.

Rather, coins are designed for multiple uses in more intelligent projects, which eliminates the original, simple use of a utility. Multitasking of a coin in an ecosystem is possible and is being applied more and more, but this can also cause the pricing of a project to suffer greatly, because too many factors influencing a coin also determine the basic value of all other functions performed.

In the end, it is like all well-developed technological innovations in the world: there is always another, previously undiscussed use that a pioneer of innovation must find and properly apply in order to innovate and bring to a new level the existing technological advances that are considered final. And in crypto, this happens almost daily.



Gandalf - SafeMoon Educator

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