For those relatively new to the world of cryptocurrency and blockchain, it can be easy to get overwhelmed by all the different terminology out there. “As a global decentralized digital ledger system,” says Richard Oh, founder and CEO of BlockPack, “blockchain enables new forms of direct monetization and engagement between anyone in the world without being dependent on any central entity. Individuals and organizations can buy and sell with cryptocurrency, create new forms of community utility with NFTs, invest through securities tokens, store and share digital records and contracts or any combination thereof.”
Navigating through these terms can almost feel like trying to use a decoder ring to converse with others in the blockchain community, but it’s actually more simple than one might think. Essentially, cryptocurrencies or ‘coins’ are currency, albeit non-fiat currency. Utility tokens are tools that grant those holding them access to special promotions. These are different from security tokens, which represent a share of ownership in a company that operates on the blockchain.
Both tokens and currency have existed for thousands of years. However, it is only in the past decade or so that we have seen digital currencies and tokens arise, restructuring the way we understand the creation and transfer of value in economic markets. Though this tokenization of financial ecosystems is bound to continue in the coming years, one question on the minds of many is whether those tokens will be able to create and transfer equal value without ecosystems as they do within them.
Differences between crypto token classes
To understand how cryptocurrencies and tokens generate value, we must first understand the key differences between different types — or classes — of tokens. Cryptocurrencies are just that: currency. While different from fiat currencies which are issued and backed by federal governments, the core functionality of cryptocurrencies or coins is no different. Rather, it is only the blockchain ecosystem they are bought, sold, and traded upon that is different.
“Coins are coins, digital or otherwise,” said Alvin Juano, the creative mind behind The Square Comics and its NFT collection of Squarmies. “‘Utility token’ provides value within a specific project ecosystem, generally think of it as a ticket for a concert or VIP event, or a promotional tool that allows users to access unique products or services. Security tokens, on the other hand, do not need to have a utility. A security token is usually used solely to raise funds and represent a portion of ownership in a blockchain-based company, similar to how stock shares represent a portion of ownership in publicly-traded companies.”
As Juano explains, the primary difference between a fiat coin and a crypto one is that the latter isn’t controlled by a central bank or government institution. Since digital coins and cryptocurrencies operate via blockchain technology, they are inherently decentralized. Though their value is generated predominantly from the shift of supply of coins that have been made available and demand for those coins, this shift also largely depends on the scale of engagement and involvement from users within their ecosystem.
“Where there is demand, there will be supply,” said Rewards Bunny CEO Jacky Goh. “When you have a strong [community] working together and supporting each other, you will definitely go far…community is number one.”
According to both Juano and Goh, the aspect of building and fostering community is crucial to establishing a healthy ecosystem in the blockchain space. User demand can not only play into the generation of value for cryptocurrencies and tokens, but also help companies unlock new means of utilizing tokens across platforms, generating even more value in the process.
Using tokens within vs. without an ecosystem
At their core, ecosystems are meant to encourage an organization’s customers or users to utilize that organization’s entire range of offerings, which can be accessed through one unified account. For instance, consider how having one Google or Apple account unlocks access to all of the tech giant’s services and platforms. This is precisely how cryptocurrency ecosystems operate, but on a different business model. Rather than generating revenue through selling products to users outright, most companies in the crypto sector do this through the use of tokens.
One great example of how this works is shown through the tokens Yield Guild Games (YGG) provides to users within its ecosystem. According to the organization’s co-founder and one of the founders of Oasys, Gabby Dizon, YGG’s token, “…represents membership and governance access to [YGG] itself. There are certain exclusive benefits that you can get only if you hold a token. There’s also different guild-specific NFTs that you get [that] signify that you’re a member…The token itself represents governance of the guild and the assets inside.”
Another example comes from the Pyrrho project, which takes its name from the Greek philosopher Pyrrho of Elis, who is regarded as the founder of the ancient skeptics’ movement. Pyrrhonism teaches the central idea that we should maintain a suspension of judgment in our state of mind. Pyrrho was established on the premise that online communities will benefit from ongoing investigation into the nature of things as an alternative to the formation of immutable ideological factions, which leads to an inability for people with differing viewpoints to effectively communicate.
Indeed, using tokens within an established ecosystem can provide holders with a boon of benefits, but those benefits only tend to extend as far as the ecosystem they are meant for. However, utilizing tokens without an ecosystem is entirely possible, so long as the services they represent are able to be transferred between users of other ecosystems and platforms.
“For instance,” said Nick Donarski, founder and CTO of ORE System, LLC, “imagine an online match of Call of Duty [where] players witness another’s in-game avatar sporting a skin they believed was an exclusively available NFT purchase in Fortnite.”
As Donarski explains, the avatar skin, as an NFT, would serve as a utility token for the players who hold it. Even though Call of Duty and Fortnite are owned and operated by entirely different companies with completely different ecosystems and platforms, that token could still be sold and transferred to another user so long as both the buyer and seller use the same blockchain exchange to do so.
“In the future,” Donarski adds, “we’ll likely see a number of businesses and companies implementing initiatives that allow this cross-platform, cross-ecosystem transfer of digital assets like crypto tokens for purchases. Using blockchain and tokens would make these transactions more secure, faster, and heighten user engagement.”