Tokens — your dig­i­tal return

In this arti­cle, you will learn -

how tokens work and how Ecrop utilize them to boost your business.

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1. What are tokens?

Imag­ine you’re at a fair. You have won tokens while throw­ing cans, which you exchange for an over­sized ted­dy bear. Tokens fol­low this prin­ci­ple of trans­ac­tion. A token sym­bol­is­es a val­ue that can be con­vert­ed into an equiv­a­lent val­ue. Tokens can thus take on a task — like mon­ey in the econ­o­my. The deci­sive dif­fer­ence: they are gen­er­at­ed elec­tron­i­cal­ly alone. They are cre­at­ed, exist and func­tion in dig­i­tal space. To cre­ate a token, you need a blockchain.

On the blockchain, tokens can be pro­grammed as so-called ​“smart con­tracts” to take on many dif­fer­ent roles. They can not only be a means of exchange and pay­ment, but also rep­re­sent social val­ues. For exam­ple, a com­mu­ni­ty could dis­trib­ute tokens that give the hold­ers co-deter­mi­na­tion rights. Such tokens are called ​“util­i­ty” tokens because they serve a pur­pose tied to an explic­it sys­tem. With­in this frame­work, there are no lim­its to the pos­si­ble appli­ca­tions. The­o­ret­i­cal­ly, a teacher could dis­trib­ute a ​“Home­work” token to his stu­dents to organ­ise their home­work.

Impor­tant: Accord­ing to the law, util­i­ty tokens may not be used for prof­it. This is what a sec­ond, often used type of token is for — ​“secu­ri­ty” tokens. As the name sug­gests, they embody secu­ri­ties or shares in finan­cial projects. A prop­er­ty, for exam­ple, can be bro­ken down into numer­ous assets for investors with the help of secu­ri­ty tokens. No mat­ter what the invest­ment object, tokens can trans­late it, sim­pli­fy it and make it avail­able to enable more peo­ple to access the finan­cial mar­ket.

Tokens can be divid­ed into ​“fun­gi­ble” and ​“non-fun­gi­ble”. Fun­gi­ble tokens have iden­ti­cal prop­er­ties. They are inter­change­able with some­thing of the same val­ue and can serve as cur­ren­cy in the form of coins. Non-fun­gi­ble tokens, also called ​“NFTs”, have no unique coun­ter­val­ue. They rep­re­sent unique val­ues. You can­not exchange them 1 for 1. A paint­ing by Leonar­do da Vin­ci would be a tan­gi­ble NFT, a video game skin a dig­i­tal one. Data on NFTs, such as infor­ma­tion on the cre­ator of a prod­uct or art­work, can be stored on a blockchain and help pro­tect copy­rights.

2. Advan­tages and dis­ad­van­tages of tokens

Since tokens are based on blockchain tech­nol­o­gy, they inher­it its strengths and weak­ness­es. They are organ­ised in a decen­tralised way. The blockchain net­work with its demo­c­ra­t­i­cal­ly man­aged data ensures trans­paren­cy and secu­ri­ty. Exter­nal ser­vice providers, such as a bank in the case of a finan­cial trans­ac­tion, remain out­side. This sim­pli­fies the process and saves fees. The direct path pro­motes coop­er­a­tion between users and providers or between con­sumers and pro­duc­ers. A com­mu­ni­ty can devel­op around a project. The more par­tic­i­pants a com­mu­ni­ty has, the more secure and influ­en­tial its tokens become.

If the blockchain runs on the ​“proof of work” prin­ci­ple, the ener­gy required by the servers to host the tokens becomes a dis­ad­van­tage. The blockchain grows with each trans­ac­tion and with it the records pro­duced and their con­sump­tion of resources. A high user fre­quen­cy also throt­tles the speed of the process­es.

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By leveraging tokenization, Ecrop is not only unlocking the future of finance but also paving the way for a new era of start-up investments. With our robust platform, businesses can seamlessly issue electronic stocks, maintain a digitized cap table, handle corporate actions efficiently, connect directly to secondary markets, and ensure secure custody solutions for their assets.

As we stride forward in our journey, we invite you to join us and explore the immense possibilities that tokens and blockchain technology bring to the financial market. Together, let's embrace the future of corporate finance and unlock new opportunities in the regulated financial sector.