The value of tokens in the blockchain

Everyone who is interested in the topic of cryptocurrency is familiar with the concept of a token. Let’s talk about the value of tokens in the blockchain and why their price is rising.

Passive profit making

Cryptocurrency is considered a highly profitable, but risky way of earning. But there is an opportunity to receive cryptomonets as passive income.

One of the ways of passive earnings is mining PoW (Proof of Work). The meaning of such mining is to rent your computer to work with blocks in the blockchain: creating new blocks, confirming their authenticity, adding existing blocks to the chain. Mining is based on complex computational algorithms with the maximum degree of protection and requires a lot of computer power.

For this, the owner of the computer (miner) receives a reward in cryptocurrency. Mining requires equipment and electricity costs, and they are constantly growing.

Therefore, recently, stacking (POS, Proof of Stake) has become increasingly popular, the essence of which is the storage of coins (tokens) on an exchange account. The user’s reward depends on the number of tokens. Thus, the computer’s power is not involved.

Why do we need tokens in the blockchain

Tokens are digital assets that can be linked to cryptocurrency, but do not have their own blockchain. The main purpose of the tokens involved in the transaction is to ensure security.

According to experts, the global economy loses several trillion dollars annually from the activities of cybercriminals. Until recently, the only way to protect was a system of passwords and servers. But practice has shown its unreliability. At the moment, the best way is token-based authorization.

The blockchain is a decentralized network in which there should be many nodes (nodes). Each node (validator) is linked to a specific active blockchain wallet. The weight of the validator is determined by the number of tokens it has.

This scheme protects the network from hacker attacks. When transferring tokens within the network, a small commission is paid. Therefore, hackers cannot load the network with a large number of their transactions (this is the mechanism of a DoS attack), since the total commission will be very high.

Why tokens can get more expensive

Under certain conditions, the value of tokens can grow. This allows us to consider them as a source of passive income.

The cost of tokens will increase if they are distributed across nodes with a large number of transactions. In this case, the number of tokens will correspond to the need and popularity of this blockchain.

Thus, the main task of the user is to choose the right blockchain. In this case, the value of the invested tokens will increase.

Forecasts

Even now, financing projects with tokens allows you to quickly achieve their liquidity compared to traditional methods. As a result, it becomes possible to attract venture capital into previously uninteresting projects.

The use of tokens allows you to lower the threshold for entry into projects where it is traditionally high. This is, in particular, the creation of funds in the field of construction, where the threshold is usually several tens of thousands of dollars.

Many recognized authorities in the field of investment speak positively about cryptocurrency, for example, Robert Kiyosaki, author of the bestseller “Rich Dad, Poor Dad”.

At the same time, experts warn of possible dangers. The price of tokens can quickly grow by tens or even hundreds of times. For example, in 2018, the cost of Voice music platform tokens increased more than 450 times over the summer.

However, for many financiers, the state of the cryptocurrency market (there is even the term “golden cryptolihoradka”) now resembles a financial bubble in the market of Internet projects in the early 2000s. After this bubble burst, most investors simply lost money.

Another danger of investing in cryptocurrencies and tokens: their circulation is not regulated by law. Even in the case of obvious fraud, it will be very difficult to defend your interests in court.

Published: 6 October, 2021

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