The Ultimate Guide to Crypto Tokens

Real-Life Examples of Tokens

• Cinema tickets act as tokens: they are issued by the cinema and represent your right to access the movie theater.
• In some arcades, you need to purchase “coins” (tokens) that you can insert into the machines to turn them on or unlock them. They are not money. They have no value outside of the arcade.
• You see tokens in board games too. If you play Monopoly and manage to buy 3 “houses” and 5 “hotels”, you don’t own them in real life. You only own the tokens that represent them in the game.
• Casino chips
• ID cards
• Plane tickets
• Etc.

What are Crypto Tokens?

• They have a certain use, for example, representing the ownership of an asset or being used as a currency.
• They are issued by a person or group. In this case, organizations make use of smart contracts to create their crypto tokens.

• Crypto tokens can be issued and traded on a blockchain without the need for intermediaries or centralized authorities.
• Everything in the blockchain is public and verifiable, which increases the transparency of the system.
• Possibly lower transaction costs, which could bring tokenization to sectors where it has been traditionally hard to achieve like the real estate example above.

Fungible and Non-Fungible Tokens

• Currencies: any two $10 bills hold the same value. Even if they have different serial numbers, in value, they are the same. If you go to a shop to buy a bottle of water, you can use either one to pay because they both are worth the same.
• Gold. Any two ounces of gold are considered the same everywhere.
• Financial instruments like commodities, shares, options are fungible assets.

// List of owners
owners = ["Alice's Address", "Bob's Address", "Carol's Address"]
// Mapping to represent how many tokens each user owns
balances = {"Alice's Address": 14, "Bob's Address": 7, "Carol's Address": 31}

// To transfer X tokens to user _to
function transfer(address _to, int X) public {...}

// List of owners
tokens = ["TokenID 1", "TokenID 2", "TokenID 3"]
owners = ["Bob's Address", "Carol's Address", "Alice's Address"]
// Mapping to represent who owns each token
ownerOf = {"TokenID 1": "Bob's Address", "TokenID 3": "Alice's Address", "TokenID 2": "Carol's Address"}

// To transfer token with id tokenID to user _to
function transfer(address _to, int tokenID) public ...

Types of Tokens Based on Their Purpose

Creating Your Own Token

1. Initially, the organization who issues the tokens will own all of them.
2. We need to know how many tokens we have issued.
3. Also, we need to keep track of who owns how many tokens.
4. We want to allow users to transfer tokens to other users.

pragma solidity 0.4.24;

contract BasicToken {
    // Total number of tokens we've issued (Requirement 2)
    uint256 totalSupply_;
    // To represent who owns how many tokens (Requirement 3)
    mapping(address => uint256) balances;
    
    // Initialize the system. This code only runs once, when we deploy the contract
    constructor(uint256 _initialSupply) public {
        // Set initial token supply (Requirement 2)
        totalSupply_ = _initialSupply;
        // Assign all tokens to the creator of the token (Requirement 1)
        balances[msg.sender] = _initialSupply;
    }
    // Get the total number of tokens we have issued (Requirement 2)
    function totalSupply() public view returns (uint256) {
   		return totalSupply_;
    }
    // Retrieve how many token a user owns (Requirement 3)
    function balanceOf(address _owner) public view returns (uint256) {
   		return balances[_owner];
    }
    // To transfer a certain amount of tokens to another user - represented by _to (Requirement 4)
    function transfer(address _to, uint256 _value) public returns (bool) {
        // Verify that the receiver of the tokens is a valid account
        require(_to != address(0)); 
        // Verify that the sender has enough tokens to transfer to the receiver
        require(_value <= balances[msg.sender]);
        // Update sender and receiver balances
        balances[msg.sender] = balances[msg.sender] - _value;
        balances[_to] = balances[_to] + _value;
        return true;
    }		
}

Standards for Crypto Tokens

pragma 0.4.24;

interface ValidToken {
    // Example function. We only specify what they look like, not what they do
    function transfer(address _to, uint amount) public;
    function aSecondFunction() public;
    function anotherFunction() public;
    ...
}

contract X is ValidToken {
    ...
}

contract BasicToken is ValidToken {
    function transfer(address _to, uint amount) public {
    	// Here we write the logic of the function        
    }
    function aSecondFunction() public{
        // Here we write the logic of the function
    }
    function anotherFunction() public{
    	// Here we write the logic of the function        
    }
    ...
}

Ethereum Crypto Tokens Standards

• To keep track of how many tokens have been minted.
• To know the balance of every user, this is, how many tokens each user owns.
• Users to transfer their own tokens to others.
• Tokens to be approved so they can be spent by another on-chain third party.

• Checking the balance of each user.
• Finding the owner of a given token.
• Transferring tokens from User A to User B.
• User C can approve token transfers for User A and User A can transfer them as if he owned them.

Differences Between Crypto Tokens and Cryptocurrencies

Initial Coin Offering

• Companies define a funding goal and make public their intention to raise funds along with all information about the project that potential investors may find useful.
• Tokens are created, a process that we have already covered extensively in this article.
• The ICO event is promoted. Interestingly, some online platforms have banned the advertising of ICOs (we will see in a minute why).
• The ICO starts. Tokens can be purchased in exchange for other more established cryptocurrencies, like Bitcoin or Ethereum. This step may consist in one or multiple rounds where investors can buy tokens.
• Once the funding goal has been achieved, the project launches and the tokens are released to the buyers.

ICO Scams

• Launching ICOs in exchanges that don’t have an established reputation.
• Bounty scams, where promoters of the ICO are not paid for their work.
• “Pump and dump”, based on fear of missing out (FOMO): when the price of the token inflates, the scammers just sell them for a profit instead of continuing working on the project.
• Creating a fake project: fake founders, fake team, fake social media, fake everything.
• “Exiting” the project and running away with the money.

Interoperability

Conclusion