Guide on blockchain technology and tokens for beginners.

Novice investors in this industry are constantly asking these questions – either in respect of a specific project or for General purposes So I decided to write a detailed, but a basic explanation of how tokens are used and why the use of blockchain technology is justified.

In fact, the blockchain technology includes many models of game theory and incentive mechanisms. Order based on the blockchain, the network was valuable or useful, it must have members. Network Bitcoins would have no value if it was used just me and you. There is no particular value in an empty network with low involvement.

To protect the members of the network, we need some incentives to attract more people. The most common way of borrowing is through the results or the reward of participants with the tokens used in the network. The more participants, the more decentralized the network is.

So, why not just use a database? Why do these projects need the blockchain technology?

Have a decentralized system has several key advantages over server/database with centralized management:

  • Immutability
  • Security
  • Data duplication
  • The lack of overhead/cost reduction
  • Reliability/transparency

Immutability

Due to the fact that records and data are decentralized and distributed on the blockchain, not a single member will never be able to distort or to falsify them. Compare with how it is now. If you post some data, for example, on your computer, you can easily edit the file before you send it to someone. So how can I be sure that I can trust you?

Security

Traditional servers or data are mostly centralized, which makes them an easy target for attacks. Recall, about the hacking of major credit bureaus Equifax, and other cyber security problems recently. Instead of storing all the data on one or more servers that can be attacked by hackers through a decentralized blockchain technologies greatly complicates the task of the hackers. The more participants/nodes in the network, the more copies of data is created. Therefore, if you want to skew your data, you will have to hack each node in the network and change all their data at the same time. Blockchain technology makes the data not only reliable but also tamper-proof. Each block in the chain contains a certain amount of data, and when this block fills up, like a stick, it is encrypted and sealed forever. To obtain a complete picture, hackers will have to hack not only need the block but all the blocks preceding it. It is not only almost impossible technically, but also very costly, and therefore unattractive to intruders. In different blockchains apply different means of protection and algorithms, we describe only the General principles of how this works.

Data duplication

The point is that the same set of data distributed around the world, and so no need to worry that you will lose your copy. This ensures data security for corporations, as it allows you to not worry about data corruption, failures in servers, etc.

The lack of overhead/cost reduction

Through a decentralized network of nodes that store and maintain the register of transactions, the cost of hosting, security and maintenance significantly reduced. Eliminating the cost of paying IT staff, DevOps and related overhead. For example, the Apple servers almost constantly under attack, from-for what the company has to keep a huge staff that monitors the servers 24/7/365.

Reliability

Considering all the above, you can be sure that each entry and each action in the blockchain is accurate and reliable.

Due to all these factors to solve problems of trust, and all transactions are completely transparent, eliminating the need to trust the other side. You can just use the blockchain technology and let the data and facts speak for themselves.

Work systems and information infrastructure currently used? Of course, but they are not perfect. They exist in their current form only because there were no better technology. Until the blockchain.

Okay, but what gives the tokens value? Why do they need?

It depends on the specific project. 90% of the projects was complete bullshit, but for convenience we will take those which have real value and usage scenarios.

As mentioned above, tokens are often used as a method of encouraging the members of the network, therefore, a successful network implies a huge number of participants, which is achieved due to the decentralization and security of the network. The more participants, the more weight is consensus that the network has value, as it was with Bitcoin. She was worth nothing, when Santoshi first introduced it to the world, and the only party he was himself. But after she gained recognition, more and more people support the consensus that the tokens have a value in Bitcoins as a currency, and therefore they have intrinsic value for network members.

There are several basic types of tokens, the value of which provides a different:

  • Currency tokens like Bitcoin, Monero, Raiblocks and others.
  • Functional tokens that you can use or to perform some action within the network. Examples of – ETH or ZRX. In Ethereum, you’ll need the ethers (or, alternatively, “gas”) for the establishment and operation of smart contracts, etc.
  • Asset tokens who are the digital counterparts of real asset or product.
  • Tokens-stock that, in fact, equal to the stock, giving owners the right to vote or participate in consensus building.

The value of the exchange token – for example, Bitcoin comes primarily from its use as a currency/means of capital saving.

The utilitarian value of the tokens depends on the acceptance and popularity of the network. For example, the amount of data written into the blockchain, and the amount of information processed, since then, the network participants are willing to pay the sites a fee for processing, validation, exchange and protection of these data. It can be decentralized exchanges or enterprise that writes data about the supply chain in the blockchain, etc.

The value of tokens representing the assets can be tied to the valuation of assets (for example, Cryptokitties can be considered an asset, and at the same time they exist on the basis of Ethereum, thereby giving value to the ETH tokens used for trading this asset) to which they are attached or which they represent. If Cryptokitties sold for some “cilicaine” and evaluated them, the tokens of the asset would these cilicaine.

Evaluation of token-actions depends on the mood of investors and development of the project. Whether they received recognition in the business environment and the spread in the real world? The right to vote what kind of will be given to the owner of the token? What are the prospects and development direction of the company?

So now we know the origin of the value tokens. But what affects the cost?

Different projects and token incentive or economic models that influence their price, may vary. Not taking into account the stock market game here are some technical factors that affect the price of tokens, regardless of investor sentiment:

  • Supply and demand. This is probably the most important factor for assessing the value of the token, especially now when the market is purely speculative.
  • Recognition/use. If in a network any activity? What is the network and the tokens?
  • Rate of combustion. Burn tokens after some time or after using? With what speed?
  • Number of tokens in circulation and “frozen” capital. How many tokens are in circulation? Are there any frozen assets?
  • Generating a secondary token – as NEO/GAS etc.
  • Staking (staking). If you will earn extra tokens for the storage and retention of their assets within the network to ensure her safety?
  • Mining/pre-mining. How much coin is released and what the new production schedule? Or are they all mined already?

So, as we can see, there are many factors that can affect the value and cost of the token and “Where does the value of the token?”is a very broad question that requires a detailed answer.

I hope I managed to explain the General principles of what blockchain technology, the structure of incentives for members of the network and the advantages of the decentralized model and also gave an understanding of what the tokens are and what determines their value. Cryptocurrency market is rapidly evolving and it is important to understand the underlying technologies and the principles on which it is built, to make smart investments and to separate the wheat from the chaff.

Good luck and invest wisely!

Source