Chapter 4. Token Varieties

Nowadays, there are tokens everywhere, purporting to do everything from replicating loyalty programs and gaming credits, all the way to acting as payment systems within messaging apps and even using token platforms to create more tokens. There are a dizzying number of tokens available at present, all claiming to provide exceptional world-changing utility and value.

The question is: do these tokens really offer what they claim? In this chapter, we'll take a closer look at tokens, particularly:

• Tokens on the bitcoin blockchain (Omni/Counterparty)

• Tokens on custom blockchains (Nxt/Waves)

• Tokens on the Ethereum blockchain (Augur/ICONOMI)

• Tokens on non-blockchain technologies (IOTA/Hashgraph)

We'll take a step back in time to see how ICOs were done back in the good old days, on the good old original bitcoin blockchain, then on other blockchains such as Nxt and Waves, before jumping into the ever-popular Ethereum blockchain. We will also round off by introducing relatively...

ICOs on the Bitcoin blockchain

Before Ethereum existed, and ERC20 tokens were the buzzword, ICOs were known as crowdsales or fundraising events. Platforms based on the bitcoin blockchain were invented to enable the creation of tokens linked to a bitcoin address, much like how ERC20 tokens are linked to an Ethereum address. Omni (formerly known as MasterCoin) was such a platform. Counterparty was another and so was Factom.

Figure 1: Omni, Counterparty, and Factom were the early adopters that built on top of the bitcoin technology

These platforms also included rules or "protocols" on how other tokens could be created and are generally referred to as "protocols" for this reason.

Note

Protocol: A rule or way of doing something or, informally in the software world, a standard language that lets a bunch of people on the internet work together on a specific problem.

Omni (OMNI) (formerly MasterCoin)

Omni is an open-source, fully-decentralized asset platform on the bitcoin blockchain and was created...

Counterparty (XCP)

Counterparty is a platform to manage cryptographic assets. It extends bitcoin's functionality by writing in the margins of regular bitcoin transactions.

Counterparty did not hold a crowdsale or ICO, but did issue XCP, about six months after Omni in January 2014, to the bitcoin address 1CounterpartyXXXXXXXXXXXXXXXUWLpVr.

2130 bitcoins were received and then subsequently burned and destroyed using a technique called proof-of-burn to avoid pre-mining. The terms of the swap were that one bitcoin burnt would garner between 1000 and 1500 XCP, as stated by Counterparty on bitcointalk:

"No more than 1 BTC may ever be burned by any address, and the number of XCP received per BTC is between 1000 and 1500, with more XCP being rewarded the earlier in the burn period the burn takes place." (https://bitcointalk.org/index.php?topic=395761.msg4271279#msg4271279).

In the end, the total supply created from the 2130 bitcoins was 2.65 million XCP tokens. These tokens were used to run Counterparty...

ICOs on custom blockchains

While Omni and Counterparty were busy building new features, based on the existing bitcoin blockchain, and providing services to companies such as MaidSafe, Tether, and Storj, others in the crypto space saw the limitations of the bitcoin blockchain technology. First of all, there were technical limitations in terms of speed, performance, and scalability. The programming language script was not widely used, and it was limited in features; progress and innovation were dependent upon the bitcoin developers. From all of this, several projects emerged, such as Ethereum, Lisk, Waves, and Tezos:

Figure 9: ICOs developing custom blockchains

The first project, though, was Nxt, which appeared very early on in 2013.

Nxt

Nxt (pronounced "next") calls itself a "cryptocurrency constructed from scratch using open source Java" and states in its white paper:

"A total quantity of 1 billion available tokens were distributed in the genesis block." (https://www.dropbox.com/s/cbuwrorf672c0yy...

ICOs on the Ethereum blockchain

Towards the end of 2015, a handful of companies started using Ethereum to raise funds for their projects, but no one could have predicted the success that it was about to have. What Ethereum did was take the blockchain cryptocurrency concept to the next level. It not only provided faster transaction speeds, but it added flexibility, and essentially brought a new meaning to programmable money.

Creating tokens on the bitcoin blockchain was somewhat problematic. The bitcoin blockchain was essentially the technology layer; Omni, or Counterparty would be the protocol layer; and applications such as MaidSafe would then represent the token layer. That is a lot of complexity, not to mention a lot of layers. Why not just use one layer to build applications on top of? The thinking at the time was that the bitcoin blockchain was the largest and most secure network, so why not make use of that? What Ethereum did was to reinvent the wheel. It was a risk, but one worth taking...

ICOs on non-blockchain technologies

With all the commotion centered around blockchain technologies, there were some interesting non-blockchain technologies that came to light. IOTA and Hedera hashgraph are some examples.

IOTA

IOTA describes its technology as a brand new and novel micro-transaction cryptotoken optimized for the Internet-of-Things (http://iotatoken.io/iota.html). IOTA's approach is that instead of collecting all the transactions in a network and forming a group or a "block" of transactions, and linking them together to form a chain, all the transactions individually link to two other transactions to form this mess or tangle of transactions.

IOTA is the 9th letter of the Greek alphabet and means a small or tiny amount. As an acronym, IOT represents the Internet of Things. The A could mean anything from architecture to array or application.

Now, because IOT devices are due to explode into the billions, around low-powered sensor devices for machine-to-machine communications, IOTA...

Summary

The blockchain and ICO landscape can be a daunting prospect to understand at first, due to the dizzying array of ICOs, but when viewed in a logical and chronological order, it should slowly start to make sense.

In this chapter, we learned that the first evolution of ICOs was when companies started building upon the existing bitcoin blockchain, such as Omni, Counterparty, and Factom. They did this to get started quickly without having to build their own blockchain. Then, alternative custom blockchains appeared, such as Nxt, Ethereum, Lisk, and Waves, each bringing their own unique advantages. Ethereum has been the stand out, though, with over 95% of ICOs performed on this platform, primarily due to first-mover advantage and the huge community support it has built up.

We have also seen the emergence of non-blockchain technologies, such as IOTA and hashgraph, that claim to be the next generation of technology, providing solutions to scalability and instant transactions, and removing the...

References

1. https://coinmarketcap.com/currencies/omni/

2. https://coinmarketcap.com/currencies/tether/

3. https://coinsutra.com/waves-cryptocurrency/

4. https://wavesplatform.com/mining

5. https://www.iconomi.net/dashboard/