Categories: EducationFAQ

What is an Ethereum-based Token?

The Ethereum ecosystem offers quite a few technological advancements to take advantage of. One of those technological advancements revolves around being able to issue one’s own token on the Ethereum blockchain. This is quite an interesting concept, as it gives everyone in the world the chance to create a new currency. Now would be a good time to look at what this entails exactly, and whether or not it is worth your while.

The Concept of Issuing an Ethereum-based Token

On paper, it sounds pretty straightforward to issue an Ethereum-based token. All you need is an internet-connected computer and access to the Ethereum blockchain. However, there are some other factors to take into account. First of all, just because everyone can issue a new token on the Ethereum blockchain does not mean they should. Just issuing a token on the Ethereum blockchain does not mean it has any value whatsoever.

Moreover, the best way to go about things is to create an Ethereum-based digital token backed by fungible tradeable goods. These goods can be actual coins, IOUs, in-game items, etc. Without any intrinsic value to the token, no one will be interested in obtaining them, which is only to be expected. It also appears there is an existing piece of code on the Ethereum website to create your digital token right away. Do keep in mind you want to do some research regarding this code and how it can be modified to suit your own needs.

Once your token is created, it needs to be deployed in the Ethereum blockchain. This is not an automated process by any means, as the token “code” needs to be entered as a contract through your Ethereum Wallet. Once the contract is deployed – assuming there are no errors in your code – one can start the issuance of these tokens right away. Do keep in mind creating this contract and issuing the tokens comes with a small cost, referred to as “gas.” It is impossible to issue new tokens without a small ETH balance in your wallet, which is only normal.

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Tokens issued on the Ethereum blockchain are about a lot more than just speculation as well. Every token can be used to build decentralized applications, for example. Improving the token and its inherent value is of the utmost importance. After all, if there is no use case for your particular token whatsoever, no one will even be interested in owning them. Most tokens are only created because there is a project which requires a new native currency. Creating a token before there is a project in place will only cause issues, that much is evident.

Once tokens are issued on the Ethereum blockchain, and there is a clear use case for them in place, issuers can look to host a trustless crowdsale. This is how most cryptocurrency ICOs are created as of late since nearly all of the tokens one can buy are effectively issued on the Ethereum blockchain these days. Using the same coding language for the creation and issuance of the token, one can set up a contract where contributors can send funds to. This money is then kept in that contract until a goal or financial target is reached. It is equally possible to refund token buyers if needed.

It is also quite interesting to note the way tokens are issued on the Ethereum blockchain has evolved over time. Not too long ago, the ERC20 token “standard” was introduced successfully. All of these ERC20 tokens can be used across different Dapps, and take full advantage of any technological advantage provided by the Ethereum ecosystem as well.

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JP Buntinx

JP Buntinx is a FinTech and Bitcoin enthusiast living in Belgium. His passion for finance and technology made him one of the world's leading freelance Bitcoin writers, and he aims to achieve the same level of respect in the FinTech sector.

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