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The rapidly increasing popularity of cryptocurrencies and other blockchain technology has inspired waves of startups and well-established companies to embrace the blockchain as the future of commerce. Even many blockchain-based companies, however, fall short on utilizing one unique advantage of the technology. Namely, the ability to establish proprietary digital tokens that can be used for various transactional purposes. Here, I've compiled a list of 10 reasons companies should be utilizing tokens if they truly wish to embrace blockchain technology.
They provide security and reliability.
Part of the reason why blockchain technology has become so popular is due to its security. Transactions made on a particular network can be traced and verified, allowing companies to know when and where monetary transactions were made. A synchronized online ledger means that all necessary parties get the correct, accurate information instantaneously and simultaneously. This is particularly useful for larger and online-based companies, as it is much more reliable than trying to keep everyone on the same page using conference calls and emails.
Tokens can be representative of goods.
One of the biggest differences between token-based systems and standard fiat currency transactions is that tokens allow for a more direct link between currency and product. If you consider a particular product, a representative token can be created whenever a new product comes off the line. By creating this token, we now have a documented history of where and when the product was produced. Buying and selling the product is as easy as shifting tokens to new accounts. This system allows for transactions to be simplified into token sales, and token holders can then go on to exchange tokens for the actual products they need, simplifying the distribution process.
Tokens provide a large-scale view on a company's resources.
One of the biggest issues with the current systems used by most companies is the inaccuracy that can result. This is especially true for large companies, who utilize any number of subsidiaries and secondary market subcontractors rather than handle everything in house. Each time a new subsidiary is added to the system, or a new subcontractor is contacted, it increases the likelihood for something to be lost in translation. Most importantly, splintering the company's resources in this manner makes it much more difficult to track the volume of resources that are being consumed. Representative utility tokens on a blockchain network that updates in real time will do away with any inaccuracy.
Public blockchains are already on board.
As forward-thinking citizens of the world are already aware, blockchain based cryptocurrencies are the future of financial transactions. Ethereum, one of the largest and most versatile cryptocurrencies in the world, accommodates anything from smart contracts to currency-based tokens. There are a number of facts about Ethereum you didn't know, and the success of it, as well as other blockchains, is one of the biggest reasons companies should be utilizing tokens themselves, whether they join the Ethereum network or establish their own proprietary blockchain.
Tokens can fund new projects.
Though they are particularly common among startup companies, venture capital financing can be utilized by any company to fund new products or services. A common form of this fundraising strategy is the Initial Public Offering, which is when a company begins to sell stock to public investors. The blockcoin parallel to this financing strategy is the Initial Coin Offering, or ICO. New companies can use ICO tokens for many uses; but particularly, to get startup capital in exchange for providing tokens that can, in turn, be exchanged for a token-based stake in the company. ICOs are one of the main reasons companies should be utilizing tokens, especially if they are a young company.
It's the only way to scale without compromising data.
Today, most companies using blockchain-based technology only use it on a small scale, for data security reasons. Limiting their networks in this way, however, can stunt growth. Using a private blockchain network is only efficient for companies with a small size and scope. The only way for these companies to grow without dealing with overly complex blockchain arrays is to switch to a public-based network. With recent developments in blockchain technology, it is now possible for such a network to exist without compromising the security of users' and the company's private data.
Tokens provide the opportunity for smart contracts.
If you aren't familiar with smart contracts, they are pretty much exactly what they sound like. Smart contracts are entirely online, blockchain-based contracts that ensure the negotiated terms are met. For example, let's say you had an extremely simple smart contract to exchange x amount of product for x amount of cryptocurrency. When the appropriate amount of currency is transmitted to you via the blockchain, tokens representing your product will automatically be transmitted back to the other party. In the real world, of course, the terms and contracts are much more complicated than this, but the gist of it is that smart contracts utilize tokens and the blockchain in order to quickly and securely ensure that the terms of a contract are met. On top of this, they digitally facilitate the process without the need for third-party enforcers or additional transaction fees.
Existing cryptocurrencies aren't enough.
As I've mentioned time and time again, one of the advantages of a company moving to a blockchain-based system is that it allows the company to utilize of the burgeoning cryptocurrencies of the world, such as Bitcoin and Ethereum, to their fullest extent. One of the reasons companies should be utilizing tokens in addition to these cryptocurrencies though is because cryptocurrencies, on their own, are not enough to sustain a business (yet). They must be used in tandem with fiat currencies as well, which means it is in a company's best interest to establish a proprietary token-based system to bridge fiat and cryptocurrencies.
Tokens allow for more complex transactions.
One of the many reasons why blockchain-based technologies are becoming more popular among companies is their versatility and flexibility. By embracing a token-based system, companies are no longer limited to simply trading asset tokens for money tokens (the digital equivalent of trading money for goods and services). With sophisticated systems in place, tokens can be used as collateral for loans or in any number of other financial transactions. Smart contracts, which I've already discussed, would ensure that these transactions are dealt with promptly and transparently.
Everyone else is doing it.
While generally not the best advice for life decisions, "because everyone else is doing it" is actually one of the more compelling reasons companies should be utilizing tokens. As more and more corporations and individuals veer toward using blockchain-based tokens and cryptocurrencies in their daily transactions, it is only a matter of time before companies refusing to adapt will be left in the dust. It won't happen this year, in fact, it won't be for several years that a token-based economy becomes more widespread; but it will happen, and when it does, companies that don't adapt will have a rough time staying afloat.