Fundamental components of the cryptocurrency markets and NFTs, the tokens still leave many people confused about what they actually are and what they are for.
In recent years, with the explosion of interest in cryptocurrencies and the ensuing regulation in several countries – a bill on this subject is being discussed in the National Congress in Brazil – more people are willing to invest in the segment.
However, the difficulty of understanding basic market elements such as tokens still deters some potential investors.
“Tokens are a digital representation of an asset, captured in blockchain, allowing them to be transferred from one person to another,” summarizes Caio Sanas, a lawyer specializing in financial and crypto assets.
According to the expert, in countries whose native language is not English, confusion about the crypto market is more common.
“In English, token means symbol or token. In terms of technology, the token has a specific meaning, referring to a device that generates passwords,” explains Sanas, also a visiting professor at Fundação Getúlio Vargas (FGV) and chairman of the first Blockchain and Virtual Assets Commission of the 36th Subsection of the Brazilian Bar Association – So Paulo Section (OAB-SP).
Also in the cryptocurrency market, the word has a different definition. We can understand it as a digital representation of an asset registered on the blockchain, which is a kind of ledger for these types of transactions,” he adds.
Categories
According to Sanas, tokens can be divided into several categories. However, there are four prominent types: pay, utility, security, and NFT.
According to the expert, the payment method is used for financial transfers – cryptocurrencies, such as bitcoin and ethereum, fall into this category.
The utility token, in turn, provides some benefit, such as access to services or a discount on products. “The fan token used by soccer teams is an example of a utility token. By keeping the property, the fan can participate exclusively in an action promoted by the club,” the lawyer illustrates.
In the case of the secutiry token, it is an asset that has been approved in a regulatory process, such as the process conducted by the Brazilian Securities and Exchange Commission (CVM) or the US Security and Exchange Commission (SEC).
“Therefore, after regulatory scrutiny, the security token represents a real estate value, such as a stock traded on an exchange,” he emphasizes.
In vogue, the NFT is perhaps the best-known token. In English it is an acronym for non-fungible token (NFT), or non-fungible token.
“In other words, it means it represents something unique, which cannot be copied. They are widely used to reproduce artistic works such as illustrations, paintings and music in the virtual environment. In a way, the NFT is like a code that contains the record of the work,” he emphasizes.
Finally, the lawyer emphasizes that in practice all cryptocurrencies are tokens, but not all tokens are cryptocurrencies.
“The crypto market is still looking for definitions. Many concepts are the subject of discussion,” emphasizes Sanas.
Source: Live Coins
John Cameron is a journalist at The Nation View specializing in world news and current events, particularly in international politics and diplomacy. With expertise in international relations, he covers a range of topics including conflicts, politics and economic trends.
