Ethereum Token Beginner’s Guide

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Ethereum Token Beginner’s Guide

To understand ethereum tokens, you first need to understand the basics of ethereum itself. If this topic is completely new to you, check out the Ethereum Quick Start Guide first. Ethereum tokens are just digital assets that are created on top of the Ethereum blockchain. Instead of building a completely new blockchain, developers use the existing infrastructure of ethereum and get all kinds of bonuses from it. In turn, they strengthen this ecosystem, causing an increase in demand for ether – the “native” currency of Ethereum, necessary for the operation of smart contracts. This guide will help you figure out how ethereum tokens differ from ethereum itself.

Comparison

Ethereum is a platform that can be used to create any arbitrary smart contract, including smart contracts, which are digital assets called ethereum tokens. This is similar to how the App Store provides a platform for iOS applications, and some of these applications release their own digital currencies used in the game or system. However, Ethereum does not have a centralized entity like Apple, which controls what is added to the App Store. Anyone can create a token based on ethereum.

Ethereum tokens can be anything from a physical object such as gold (Digix) to the currency used to pay transaction fees (Golem). In the future, tokens can even be used to represent financial instruments such as stocks and bonds. The properties and functions of each token entirely depend on its intended use. Tokens can have a fixed supply, a constant level of inflation, or even a reserve determined by a complex monetary policy. Tokens can be used for various purposes, such as paying for network access or decentralized management of an organization.

Often, tokens are issued through crowdsale, a process reminiscent of a stock sale called an initial coin offering (ICO). Token creators provide them in exchange for ether, and sometimes bitcoin and other digital currencies. Recently, many ICOs have taken place, and in a short time they have completely changed the financing scheme for new projects. There are no rules that require widespread tokens, but if you are building a decentralized application, it is advisable that they belong to as many people as possible.

There are several resources that will help you issue tokens and explain their work at a technical level. For example, Token Factory provides a simple user interface that allows you to create your own ethereum token with customizable options.

Like Bitcoin and Ether, Ethereum tokens are also tracked on the blockchain, which is the public registration of all transactions that have occurred. This is because Ethereum tokens are just a special type of smart contract that lives in the Ethereum blockchain.

Among Ethereum’s largest market cap markers are REP from Augur and GNT from Golem. Both projects are under development and have a total market capitalization of approximately $ 450 million.

Augur

Augur is a decentralized forecast market founded by Joey Krug and Jack Peterson. The forecast market allows users to bet on the outcome of various events and can also be used to reduce risk. For example, if you have 1 bitcoin that costs $ 2,000, and you want to cover this holding, you can bet that the price of bitcoin will be below $ 2,000 for a certain date. Thus, if the price of bitcoin rises, your investments will become more valuable, but if it decreases, you will compensate for your losses in the forecast market. There is no centralized source that reports on the outcome of events. This mitigates the risk of a corrupt reporter, but also creates a need for a decentralized reporting source.

Augur issued an Ethereum token called Reputation (REP). There is a fixed supply of 11 million REP tokens, 80% of which were sold through general sales, increasing $ 5.3 million. These tokens are used to report the outcome of market forecasting events. All active REP owners should report the outcome of randomly selected events. At the same time, a decentralized reporting reserve is maintained, which is necessary to regulate the results of Augur forecast markets. As a reward for providing these reports, REP owners receive half of all commission fees generated by the forecasting markets on the platform. If someone tries to lie about the results, then as a punishment, they give up some of their REP. In addition, if most owners of REPs are dishonest, then people will not want to use Augur, and the value of REP will decrease. This encourages people to act honestly in this system.

Golem

Golem is a project led by Julian Zavistovsky that allows people to rent their spare computing power to others. The idea is that by creating a worldwide supercomputer, computing power will become less expensive and thus affordable for everyone.

Golem has released an Ethereum token called Golem Network Token (GNT). There is a fixed supply of 1 billion GNT, 82% of which were sold through total sales, increasing $ 8.6 million. These tokens are necessary for interaction with the Golem network and are the currency used as payment when renting computing power. Since there is a limited number of tokens to access this network, if more people want to use Golem, then the GNT value increases. This theoretically aligns the incentives of people holding GNT and those who use it.

 ERC20

You may have heard that the Ethereum community belongs to the ERC20 tokens. ERC20 is a standard interface for tokens. ERC20 routers are just a subset of Ethereum tokens. In order to be fully compatible with ERC20, the developer needs to include a certain set of functions in his interactive contract, which in turn will allow performing the following actions at a high level:

1) get a common token
2) get account balance
3) transfer the token
4) approve token costs

ERC20 allows seamless interaction with other interactive contracts and decentralized applications on the Ethereum blockchain. Tokens that have some standard features are considered partially compatible with the ERC20 and can be easily accessed by external parties depending on which features are missing.

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