An Introduction to Digital Tokens

Mar 26, 2021

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Digital tokens are an important and fascinating concept in the decentralized space. They’re different from coins, with a wider range of uses, and a huge amount of potential for the future.

In Episode 12 of The Unstoppable Podcast, our CEO, Matthew Gould, talks about what digital tokens are, how they work, the different types available, and what the future holds.

What is a Digital Token?

How Do Digital Tokens Work?

Digital tokens are different from coins like Bitcoin and Dogecoin. They’re digital assets represented on a blockchain by means of a smart contract, so they have greater utility than coins, which are used solely as stores of value and currency.

Even things that you might not think of as having a digital representation can be represented by digital tokens. That includes things like artwork and consumables.

Who Can Use Digital Tokens?

One of the exciting things about digital tokens is that they’re available to pretty much anyone. The barriers to entry are gradually becoming lower, which means as time goes on it will be easy to get started buying, using, and selling digital tokens.

Where Can You Buy Digital Tokens?

Marketplaces like OpenSea are currently the best place to start. Here, you can search for digital tokens, browse rankings, and find exactly the right kind of tokens for you.

How Do You Create a Token?

Creating tokens is becoming easier, thanks to online tools like Mintable, which allows users to quickly turn any item into a blockchain token. Ultimately, the process involves creating a smart contract to represent your item on the blockchain, and it’s getting easier to do this automatically using software.

Types of Digital Tokens

There are two main types of digital tokens — fungible and non-fungible. Let’s take a deeper dive into the differences between them and what each type is good for.

Fungible Tokens

Fungible tokens are essentially units of an account. For example, they can be security tokens that work like shares of a company or project, or debt instruments to represent someone’s loan.

Fungible tokens are countable, so you can have a large number of them and stack them. Their value is always equal — one Microsoft token is worth exactly the same as another, and 100 of them would be worth one hundred times that.

Matthew compares them to stock certificates — they’re essentially just replicas of one another and each represents an equal part of one account.

Non-Fungible Tokens (NFTs)

Non-fungible tokens are different, and this is where the concept of digital tokens starts to get really interesting.

NFTs are any kind of asset that can be represented on a blockchain. Some of the most common examples include artwork like CryptoPunks and collectibles like NBA Top Shot. Unlike fungible tokens, each unit is often unique and has its own distinct value.

Matthew explains how NFTs can be used as digital representations of real-world things like houses — unique objects where only one exists in the world.

What is Controversial About Digital Tokens?

One aspect of digital tokens that could create controversy in the future is the use of tokens by big companies like Facebook. Facebook has plans to release its own token — Diem — on its Libra blockchain, and this is a major source of debate in the decentralized world.

What happens when giant, monolithic corporations start using technology that places privacy, autonomy, and decentralization at the core of its principles? Another concern is how Facebook could use their tokens to manipulate users and violate their privacy.

Matthew talks about the importance of regulation here, and how regulatory bodies in the US, EU, and globally will need to take action to ensure tech giants don’t use tokens to invade users’ privacy.

The Future of Digital Tokens

Digital tokens are still very much in their infancy. Right now, it’s an exciting and promising space for creators and blockchain enthusiasts, but it’s challenging for crypto newcomers without much experience in the space to get started and access the benefits of tokens.

Over time, Matthew believes this will change.

It’s going to get easier to tie digital tokens to real-world items like bottles of wine — something that’s already happening in a slightly clunkier way.

For now, Matthew recommends playing around and having fun with NFTs and collectibles. It’s a great, low-risk way to get into crypto and learn how it all works, and one of the more entertaining routes into decentralization.

To learn more about tokens, crypto, and everything related to decentralization, check out The Unstoppable Podcast. We host regular discussions with people from all areas of the decentralized space, and our content is aimed at everyone no matter their experience level.