Bitcoin has fundamentally changed the way we understand the digital economy. It is no longer central institutions but the users themselves who create the infrastructure. But on the shoulders of this giant and with the power of the block chain, the next fundamental technology has already been launched: The Ethereum network decentralizes not only payment transactions, but the entire digital economy.
What is still stored and managed in the server farms of Google, Facebook and Apple is distributed to the global network of users with the innovative power of Ether and the Ethereum’s tokens. Instead of data leaks and non-transparent corporate decisions, secure and transparent encryption in the block chain is taking over.
But what are tokens and how secure are they? What are they used for and why are smart contracts and dApps not possible without them? We have summarized the most important facts and questions about Ethereum Infos for you in this article.
Ethereum Token – What is it?
Ethereum is not a crypto currency like Bitcoin. It is basically a network that uses the block chain to securely encrypt all transactions in it. Its great strength is to create the exchange of services and goods in a secure, cheap and fast way and tokens are the secret behind it.
Ether is the network’s own currency, but there are a number of others. They enable security, low costs and speed. In short, they are the lubricant of the digital economy; here are a few examples
- The Digix Gold Token (DGX) (market capitalization approx. € 2.4 million) stands for real gold.
- OmiseGo (OMG) (market capitalization approx. € 400 million) are currently basically shares in the company of the same name; their goal is the unrestricted P2P exchange of real and digital currencies across country and block chain borders
- The Basic Attention Token (BAT) (market capitalization approx. € 200 million) represents digital advertising space and media and is causing major headaches for the major advertising-financed platforms (such as Facebook and Google).
Ethereum tokens can represent different assets depending on the business idea and performance. In most cases, however, they are also listed on stock exchanges themselves and Ethereum Trading is as attractive as trading Bitcoin. To better assess their value, it is helpful to take a close look at the advantages of decentralized management.
Why is Ethereum the Web 3.0?
Decentralized computer or Web 3.0 are the terms most often used when explaining Ethereum. The idea behind it is that users can make decisions and manage their data themselves. The keys to this are:
- intelligent, smart contracts,
- decentralized autonomous organizations and
- decentralized apps.
What are Smart Contracts
Smart Contracts are at the heart of a technological revolution with major implications. Basically they are small programs that run on Ethereum’s network and manage “if-then” relationships.
A provider creates a Smart Contract and formulates a simple condition:
Whoever transfers the required ether-based tokens receives a certain amount of gold or the opportunity to place advertisements on a certain homepage. If a user meets the conditions of the smart contract, the service is automatically activated without anyone having to control the process, because the system ensures security.
What are DAOs?
With intelligent contracts, very extensive rules can be defined that are transparent for everyone and cannot be manipulated.
Many startups use this reliability and security to implement their business idea in so-called Decentralized Autonomous Organizations (DAO): They define the business conditions and company services and secure it in the block chain of Ethereum’s network.
Investors can participate in the startup. In the beginning, there is usually a so-called Initial Coin Offer (ICO). As in traditional IPOs, the first shares are offered to the network participants. The fixed tokens serve as company shares and as a medium of exchange for the respective company performance.
One of the first and largest ICOs in 2016 was that of “The DAO” with a capitalization of over $150 million in the first two weeks. The business idea behind it was to create a decentralized investment fund based on Ethereum for the new digital economy. After an algorithm, which was actually intended as a security feature, was exploited by a stern, the story of “The DAO” came to an end.
Despite this setback, decentralized autonomous organizations are still on the rise. Especially startups that enable decentralized apps are becoming more and more popular.
What are dApps?
Google’s Play Store and Apple’s App Store are currently by far the largest providers of apps. But not all developers appreciate the power of these two big players. After it happens again and again that apps disappear from the supply without any reason and it is not clear what happens to the data, the demand for independent platforms is increasing.
The Ethereum network currently has around 2000 so-called decentralized applications (dApps) registered. The decentralized apps enable direct contact between developers and end users via Ether and the respective tokens. User data is secured by the block chain and the exchange is not controlled by third parties.
Ether and dApps are a key technology that for many people represents the next generation of the Internet. After Web 2.0 focused on user-generated content and created the social net with YouTube, Facebook and Instagram, it is now a question of freedom of choice. Ethereum enables control over one’s own data and software and is therefore often referred to as Web 3.0 – the user-controlled Internet.
What is the difference between token and coin?
Ether is a coin and a token – it is used outside the network as a means of payment and inside it has an important function in securing smart contracts. As a currency it can be used as a store of value and you can trade with it. As a security feature, you work with it and use it for a new digital economy.
Bitcoins are pure means of payment. Compared to conventional currencies, the BTC offers all the advantages of block chain technology: security, decentralized administration, protection against manipulation. However, compared to an Ethereum token, it has the disadvantage that it cannot fulfill any additional functions in the digital economy.
The most important differences at a glance:
- Key-Feature: digital payment method any digital asset (gold, advertising space, …)
- Blockchain: has its own blockchain is based on existing blockchain network
- biggest advantage: decentralized means of payment decentralized economy
Decentralized currencies and decentralized economics are the most important keywords for Ethereum and when it comes to the difference between coins and tokens. However, the terms sound a bit sober when measured against the enormous potential that lies behind them. Where some have opened a door, others create the possibility to walk through it.
While Bitcoin is changing the way we handle currencies, networks like Ethereum’s can revolutionize the way we do business. If secure and direct P2P exchange of in-kind and remuneration is possible, providers like Uber and Airbnb are no longer necessary.
How does a token work?
Ether is not a crypto currency like others. Of course you can see an ether as a means of payment, but beyond that it has much more functions, just like the other tokens of Ethereum’s network. The possibilities can best be presented in three categories:
Utility tokens provide access to a service or product defined in the smart contract. Security tokens are bound to a tradable good or service. They are most similar to real currencies and a DGX or BAT can be used to pay for gold or advertising services. However, they do not grant special rights or privileges within the network itself. Equity Tokens can be seen as company shares. This means that you not only have a value in your hand, you can also participate in decisions about further development. Just like a share, it gives you the right to vote on how the organization will be developed.
Tokens perform a variety of functions in the Ethereum network and, depending on the application, can function like conventional currencies or enable certain rights like a certificate.
How do you use tokens?
You are probably familiar with the Ethereum course and have perhaps already thought about acquiring ether. However, you may still have some questions about the potential of the ether in your hands. In Ethereum’s network itself, Ether is used to create Smart Contracts and pay for the service in return. Each smart contract causes a certain amount of computational effort in the block chain. To pay for this network service, you need ether.
Tokens from dApps are used in the same way. Golem mediates computing power based on the Ethereum blockchain and uses the Golem Network Token (GNT) as a medium of exchange. On the one hand there are masses of powerful computers in private households today, which are unused most of the time.
On the other hand, high computing power is required for scientific research, for simulations of weather or traffic volume or for machine learning. Golem brings these two sides together with simplified smart contracts. This allows research institutions or meteorological services to save investment costs for server farms. Hardcore gamers, on the other hand, can generate capital for their next acquisition during their game breaks.
What do I need to use Token?
Crypto currencies are digital assets, i.e. to use and store them securely, you need a wallet – a special software or hardware/software bundle. It’s the same with tokens. The market offers 3 types: digital wallets for the PC (desktop wallets), cell phone and tablet (mobile wallets) and special USB sticks (hardware wallet).
No matter which version you choose, the solution must meet these criteria:
- Security: A wallet must support the creation of private keys and should allow easy backups.
- Ease of use: The software must be clear and easy to use to avoid unwanted input errors.
- Community: A good digital wallet is supported by an active community that is constantly developing the software.
- Compatibility: An Ethereum Wallet must provide an interface for Ethereum’s network.
You should pay special attention to the last point. A wallet should not only support Ether, but basically all tokens of the network. ERC-20 is the keyword here: It is a special security standard for the Smart Contracts of the network.
How secure are ether tokens?
Security is the most commonly used word when it comes to the block chain. On the one hand, it is the great promise of the new technology and, on the other hand, hacker attacks on crypto currencies and coin exchanges are the most frequent headlines (besides the price development).
Ethereum is no exception, as the case of “The DAO” has shown. But since Ethereum’s functional claim is higher than that of other cryptocoins, there are two different security aspects to consider:
- The security of the block chain: All transactions of the network are encrypted with the ethash algorithm. It is as secure as that of other coins and has never been cracked before.
- The security of the Smart Contracts: In addition to block chain encryption, smart contracts are secured according to our own standards. The Ethereum Request for Comments 20 (ERC-20) is the most common one.
Both the block chain and the smart contract standard are rightly considered to be particularly secure and unhackable. The security gaps that led to the hacks of the past were found in the infrastructure and additional security features.
The block chain economy is a relatively new technology. It can still deliver on its most important promise – security. But what we had to learn painfully is how to use it safely. A lot has happened here in recent years and there are now almost 140,000 tokens listed on Etherscan that use the ERC-20 standard.
Where can you buy and sell tokens?
Tokens are more than just digital money, they enable secure and fast exchange between end-users. But they are also interesting investment and value retention tools. The GNT of Golem dApp has a market capitalization of over € 140 million and a daily trading volume of almost 2 million and the advertising token BAT is traded by about 6 million in 24 hours.
But if you want to buy an asset from the Ethereum network, it is not as easy as with Cryptocoins. Basically there are four possibilities:
- Trading in the network with Ether
- Online exchanges via the detour Bitcoin or Ether
- Exchange services like Shapeshift or LedgerDex
- The direct acquisition P2P
From the network-internal trade apart, usually established crypto currencies are necessary such as Bitcoin or ether for acting. It is of course also important that the Wallet supports the respective security standard (e.g. ETC-20). Otherwise the acquired assets cannot be kept safe.
The most important Ethereum Tokens are listed on the major online platforms and can be bought and sold there. Of course, it is also possible to operate Ethereum Mining and to buy other assets of the network with the developed base of ether. Meanwhile, there are more and more services that allow the direct transfer of tokens. On LegerDex.com every ERC-20 token can be exchanged directly. LegerDex uses the 0x protocol, another ERC-20 token from the Ethereum network.
The goal behind 0x OTC is to enable direct P2P trading between crypto currencies of any form without fees and intermediate stations – according to the basic maxim of decentralized economy.
Conclusion Ethereum Token
In 2009 Bitcoin opened the door to a new world in which trading and economic activity is possible without financial service providers and banks. The Ethereum network has continued this path and taken it to the next level. Numerous companies, start-ups and teams are now working on making direct exchange between end users the norm via decentralized organizations (DAO) and decentralized software (dApps).
In the meantime, numerous startups, banks and Fortune 500 companies have founded the Enterprise Ethereum Allianz (EEA). The goal of EEA is to coordinate and standardize further development so that the network with all its advantages can be integrated into the own company structure. The members include financial giants such as J.P.Morgan as well as technology groups such as Samsung and Microsoft.