Programmed money is particular in specifics. Bitcoin and Ethereum are programmable money and have embedded incentives. Moreover, it will help you build trust among network participants without needing a trusted third party. These rules are made in a self-executing contract when some predefined videos are met. Such a contract is known as a smart contract and determines the functionality of money. With programmable money, there is a need for a third party to do transactions.
Why is it needed?
A new currency system, programmable money, is introduced to make transactions more secure. It eliminates intermediaries and introduces efficiency grains in executing and settling transactions.
Programmable money is often termed “tokens.” But before going into its details, we first have to know what tokens are. What are the functions and possibilities of programmable money or tokens?
What is a token?
Tokens are a blockchain-based abstraction that represents and owns assets and currencies. Different types of tokens are in use. So please take the next step and explore them one by one.
1- Security tokens
Security tokens are subjected to regulations and securities, and this is the reason that these tokens are considered safer. Up to a point, security tokens are tradable assets, including
- Voting rights
- Also known as investment tokens
- A form of participation for investors
- It gives security to investors that increases its value
Reasons to issue security tokens
- It gives high liquidity
- Better programmability
- Has the ability to attract retail investors
- You don’t need to make your company public
- Has the ability to attract capital globally
2- Utility tokens
Utility tokens are app coins and are also termed user tokens. These are offered at the time of ICO execution. Unlike security tokens, these tokens cannot be used for investment. Although, these tokens have been redeemed for a particular discount or access to a specific product or service.
- Similar to voucher
- Different from the security token
- One who issues a utility token doesn’t receive any profit or commission
- Gives holders a right to use service or functionality
Why are utility tokens necessary?
- They give access platforms to users to access the product or service
- Utility tokens never are out of the race in the Bitcoin world
- One can use utility tokens to buy in-games like NFTs
- Play a role in expanding the web3 ecosystem
One of the significant types of cryptocurrencies is a stablecoin, whose value is bound with US dollars or gold to maintain its price. Moreover, stablecoins tackle price fluctuations and are pegged to real-world assets. Stablecoins also help to prevent rampant volatility. The stablecoins are of different types, including,
- Algorithmic stablecoin
- Collateralized stablecoin
- Fiat-backed stablecoins
- Crypto-backed stablecoins
- Commodity-backed stablecoins
- A cryptocurrency and its price linked to fiat currency
- Medium for exchange without intrinsic value like euro or US dollar
4- Currency tokens
By using digital currency, users can make payments. Moreover, these tokens are also used for the fundraising of crowd sales. Despite this, they also serve as a substitute for many other things.
- A form of cryptocurrency
- Mean of money and payment substitution
- A present decentralized alternative to traditional payment transactions
- Bitcoin is the best know currency token
5- Non Fungible tokens
The Nonfungible tokens were introduced in 2015, and a digital certificate of ownership on the Ethereum blockchain. These tokens are used to present different assets like games, sports, paintings, audio, video, political items, or any other digital value file on the blockchain. Moreover, they allow holders to own an original article. Contrary to it, a digital signature is created so no one can exchange it.
- It is a scarce digital resource
- These tokens are indivisible
- Free from any fraud
- NFTs are unique and have distinct attributes
- These tokens guarantee the asset transmission
Benefits of NFTs
- NFTs are associated with specific data and depend on their uniqueness
- Manage supply chain
- Builds a strong community
- Raise funds and drive brand awareness
- Engage digital services
6- Asset tokens
Asset tokens came into existence by digitizing tangible and intangible assets and then storing them on blockchain by converting them into tokens. Asset tokens are designed in such a way that they represent real-world objects and help facilitate the selling and buying of products.
What’s good in asset tokens?
- With their immutable ledger features, asset tokens help investors to feel secure and confident.
- It helps you to reduce intermediaries and reduce your overall cost
- Asset tokens improve the liquidity in the market and allow investors to hold a wide range of assets
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Programmable money refers to the Blockchain era and a double edge sword of the world. Smart contracts are the key ingredient of programmable money, and these contracts help to execute transactions. Moreover, many decentralized storage providers are here that enable secure the network and multiple transaction fees and rewards. On the other hand, these tokens are a medium for developing and executing various apps and smart contracts and facilitating transactions.