Hi all,

In our previous post, we explained the differences between cryptocurrencies and crypto tokens (read all about it here). Today, we're looking at some actual use cases.

So what’s up?

This is our second of two articles to explain differences between cryptocurrencies and crypto tokens. As mentioned before, they are related but not quite the same – and tokens in particular open up a lot of opportunities. We'll look at some of those below.

Let’s get started! 🤓

By and large, crypto tokens can be used to interact with decentralised applications. That sounds pretty technical, but we'll explain that in simple terms below.

Moreover, these tokens also enable very specific governance systems, or they can be used to represent specific assets.

Use case: Enhancing decentralised applications

Decentralised applications have gained a lot of traction in recent years. They can provide users with enhanced privacy, security, and transparency.

(There are also attempts to create blockchain-based versions of traditional internet applications – social media or games are prominent examples. We'll cover that in more depth in other posts.)

One of the primary use cases for crypto tokens in this context is to facilitate seamless transactions and to provide incentives for users to participate. By using tokens as a medium of exchange within an application, every user can engage in activities and be rewarded for contributions.

Traditional loyalty programmes are a simple example. Companies can issue tokens instead of points. The tokens can then be used to purchase digital or physical merchandise, to take part in competitions and for other purposes. They can also connect different companies or enable collaborations, e.g. between a company and a sports team they sponsor.

Use case: Empowering governance systems

Crypto tokens can also be specifically designed as governance tokens. These tokens enable holders to participate in decision-making processes and influence the direction of a project or platform. By owning governance tokens, individuals can vote on proposals, shape the roadmap, or even contribute to the allocation of resources.

This democratic approach to governance allows for inclusive and decentralised decision-making. In an ideal world, it fosters a sense of community ownership and empowerment. Moreover, while voting may be blockchain-based, it can be used to govern organisations, projects and other entities in the "real" world.

Governance tokens also enable organisations to experiment with different voting forms. "One person, one vote" may not be the best approach for every organisation. Quadratic voting, for example, allows voters to express their preferences in degrees, not merely the direction of these preferences. Blockchain technology makes it relatively simple to use voting forms which would be complicated to implement in other settings.

Use case: Asset-backed tokens

Asset-backed tokens are a fascinating topic. These crypto tokens are pegged to assets in the real world, i.e. outside the blockchain. That might be anything from gold bars to real estate, from company shares to artworks. Tokenisation allows for fractional ownership (ten people can own parts of a gold bar) and blockchain-based trading.

For investors, it's an opportunity to diversify their portfolio and access previously illiquid assets. Asset-backed tokens also introduce transparency and efficiency to traditional markets, reducing barriers to entry and increasing liquidity.

These tokens can also be used to represent the value of specific currencies such as the US Dollar or the Euro, backed by government bonds or similar assets. Such a so-called stablecoin enables fast and cheap cross-border payments – and can be tied to other use cases as well.

Conclusion

The three types of use cases mentioned above are really just scratching the surface when it comes to the potential for crypto tokens. It's important to note that regulatory issues also play a vital role in this context.

We've touched on this discussion in our look at the European Union's MiCA regulation and we'll discuss regulation in much more depth over the coming months.

Moreover, we'll look at various use cases in much more depth to explain the potential benefits of governance tokens, stablecoins and many other aspects of digital assets.

That’s the end for today! 😢