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What is a Blockchain Token?

With the success of Bitcoin many many blockchain projects emerged. While some of these concepts have proven their purpose for existing most have shown weak purpose or poor implementation. 

Transactions on a public blockchain typically need to “cost” something in order to build-in security and incentivize users to take actions in the ecosystem.

It is then a natural next step for these tokens to become valuable as their supply and demand fluctuate similar to the common stock market.

Cryptocurrency Tokens Can be Purchased, Earned and Traded

The main thing to realize about a digital-only, blockchain token is that they can be very valuable. Not only at their current established value but for future speculative investment. Purchasing a token can take place on one of the exchanges such as Coinbase or Binance but there are many more. Some blockchains reward mere ownership or “staking” and others allow you to earn through various actions such as mining.

Ethereum Blockchain

The ecosystem that Ethereum has built allows and encourages engineers to use Solidity, the programming language meant for smart contracts, to create their own tokens living on the very same blockchain. Engineers choose an ERC20 token on the Ethereum network because of how easy it is to create. But many other blockchains and options exist to create your own token.

Dogecoin is an example of a token which copied the Bitcoin codebase, known as a “fork”, and began a separate version on their own, as a joke. 

The Stellar Network was built to create “equitable access to the global financial system”. While the network was created for financial transactions any type of token can be built upon it.

It’s native token is called Lumens and is referred to as a protocol token. Meaning that transactions on the network cost a very small fraction (0.00001) of a lumen. This is a major draw for new projects looking for a near instantaneous transaction for almost no actual cost.

Consensus Protocols

In order for a blockchain to operate in a trusted state there must be protocol. This is an important concept because many blockchains have a protocol that you can be rewarded for participating in.

Bitcoin uses a Proof-of-Work (PoW) protocol that you’ve likely heard about. Cryptocurrency mining utilizes compute power from a miner’s machine to decrypt the aforementioned data blocks. As these blocks are “cracked” a miner has proven their participation and are rewarded for the amount of work submitted.

This work is measured as “hash”. The more powerful a Graphics Processor Unit (GPU) or Central Processing Unit (CPU) is the higher hashrate can be dedicated to cracking a block. 

Ethereum has moved from Proof-of-Work to Proof-Of-Stake (PoS) in an effort to upgrade and scale their blockchain. You can earn ETH by staking on an exchange who offers it or by owning at least 32 ETH to start your own “validator”. 

Delegated Proof-of-Stake (DPoS) was created as an upgrade to PoW and has been adopted by Iron (TRX), Tezos (XTC) and Steem (STEEM). It rewards the most reputable with votes and more chances to validate, mine or take action to earn more tokens.

Proof-of-Authority (PoA) requires validators to actively maintain the integrity of their nodes and incentivizes these owners to honest and transparent operation of their network mechanisms such as network nodes. 

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