If you haven't heard of the token economy, this moment was bound to come sooner or later. And you're in luck, because you've landed in the right place to learn all about this concept. From its definition to its characteristics and advantages. It's directly related to blockchain technology and the tokenisation of things.
join us and find out what it is all about!
what is tokenomics?
In its most literal sense, it is the token economy. And what is a token? It is a physical or virtual element that has value in a context. Think of a pack of cards. Technically, they are simple pieces of cardboard with different symbols, figures, numbers and colours, but in the context of brisca, a card can represent the ace of trump, the most valuable card in the game.
In short, the token's function is to represent something else: unlike Bitcoin, it does not originate from a block on the blockchain, but is created at the top of the chain and is governed by a smart contract.
Now that you know what it is, let's go back to tokenomics. It is related to blockchain technology and the tokenisation of things, and it has taken off thanks to the blockchain and cryptocurrency revolution. Its main objective is to create an economic system based on tokens.
And the best thing about it is that it allows any value to be transferred from the real world to the virtual world and decentralise its control.
do you think tokenomics will be a reality in the next few years? What do you know about this economy? Why do you think it is in a growth phase? Leave us your comments at the end of this post, we want to know what you think.
The blockchain in the token economy
This ecosystem is fuelled by all possible interactions made with tokens or digital assets that represent real assets. From a book, to a car, an item or any other element.
There are many tokens, but their economy would not make sense without the presence of blockchain technology. The reason is very clear, the blockchain is a distributed database that records blocks of information interlinked by algorithms (hash) to verify that they are not modified. Each block contains information on transactions relating to a period, a unique number and a cryptographic address of the previous block.
While this technology was pioneered by bitcoin, it has now spread to a wide range of applications, reducing risk, increasing transparency, reducing the potential for fraud and eliminating human error.
Now that you know what this technology consists of, you should also know that it is not only used to create bitcoins, but also to acquire tokens. Or rather, to transfer assets by linking the property rights of a token backed by the blockchain. In this way, it can be exchanged by any user, at any time and in any place with an internet connection.
In order to extend the capabilities of blockchain technology, a group of developers led by Vitalik Buterin started this project to turn Ethereum into a platform that could be trusted to create decentralised applications and digital tokens"(Scielo)
This is how we have moved from blockchain technology to tokenomics.
Everything you should know about tokenomics
The token economy enables the creation of self-sustaining economic systems, and although each development has its own principles, they all share a number of key features and characteristics:
- Cryptocurrencies should not be confused with tokens. The former are native virtual currencies on their own ledgers or blockchain. All of these currencies can be sent, received or mined. A token, however, is a digital asset that can be used in a project's ecosystem and requires another, non-self-owned blockchain platform to function.
- The purpose of a token is different from that of a cryptocurrency. It can be used as a means of payment in decentralised applications (utility tokens).
- The blockchain is the necessary means to achieve the decentralisation that characterises the token economy.
- The first thing that is needed to build the tokenomics model is to have a supportive and supportive community that can sustain the project.
- The use of the token must be driven by the community through its distribution. In this way, the economy is first energised, and then the network that sustains it is enabled. One of the most widespread practices to achieve this goal is mining.
- Achieving price stability is one of the biggest challenges in tokenomics.
- Real-lifeutility: Is it useful, what value does it bring?
what is the impact of tokens in real life? Would you like to create your own and have society interact with it in a unique way?
4 advantages of the tokenomics model
We have compiled the main advantages of the token economy to share with you:
- Flexibility- it allows you to bring the real world into the virtual world thanks to the blockchain technology that makes tokenisation possible.
- Rights: Provides access, governance or security rights to the owners.
- Payment method: It makes possible an economic system, as well as a sustainable and efficient payment method.
- Project creation: Its characteristics allow us to build unique decentralised projects.
Among the main disadvantages of this economy we must highlight the fluctuation of tokens and the risk of their investment. However, there is not a single type of token, but we can find platform tokens (they support decentralised applications), transaction tokens (used to make transactions or exchange goods and services), utility tokens (to access specific services) and governance tokens (to make decisions, participate or exercise voting rights in certain projects).
if you would like to learn more about the token economy or if you have any questions about how it works, let us know without obligation.