It's an entity with a value specified by the eminent. If it's a fashion startup, one token can be equal to one dress or a yearly license of a software in case of a hi-tech startup. You even can issue tokens of yourself and a token holder will be able to buy an hour of your work with the token. You can “tokenize” everything.
What’s the difference between cryptocurrency coins and tokens?
This is a difficult part. The easiest answer: tokens are not a currency. You don’t need to create a Blockchain to issue tokens, which is a must-have for a cryptocurrency, but you use an existing one (usually Ethereum, which was originally created as a platform for smart contracts and evolved to be a currency).
A coin is a money equivalent, something that defines value and serves as a value transfer.
A token is a symbol of a contract, the value does not depend on mining, gold price or any dynamic market criteria. A friend of mine once gave me a note saying that he will always make me a coffee on demand. He still does it, after 10 years, it was a heck good token!
What is a token contract and how does it work?
Ok, a token is not a coin, got it. But still, something should regulate it’s transaction, value etc? How does that work? You do need a platform for it. Let’s take Etherium as an example, since its one of the most popular platforms for smart tokens.
Here is the full contract cycle:
Tokens creation: a company writes the basic rules (tokens amount, token value, special conditions). Once created the platform will serve as a very smart notary for all the future transactions, making sure all the conditions are carried out.
Tokens acquisition: when somebody wants to buy a token, the process is really similar to buying a coke in a vending machine. You approach a machine, drop the coin and push the button “coke” (choose the token you want to buy). The machine checks if there are “cokes” in stock and if you are eligible to buy it. If everything is fine- you get your drink (or token in our case). The machine says “have a nice day” and updates the stock info (one coke less now).
Token transaction: In case you have a coke, you can just pass it to your friend. For money or for free. In tokens reality, you have your token wallet which is supported by the same platform that issued the token. You can transfer your token using the wallet. And again, a virtual notary, powered by a smart contract, will make sure you do it according to the rules. Moreover, all the wallets activity is constantly recorded and being updated.
Is all this free? Nope. Somebody needs to pay for the notary, vending machine technician and coke delivery. In the token world – the operation processing called “gas.” So, each time you ask to buy or sell tokens, there will be some “gas” spent and you will pay its fee.
Note: the fee is not static. It depends on a number of transactions awaiting. You can define the max cap you are willing to pay for your gas. If the token cost is, say, $10 and the gas fee is $20 is not a great deal, isn’t it? So, you can say that you pay no more than $2 for your gas, click “submit” and find something else to do meanwhile. The system will serve the highest gas bids first and eventually yours when your time will come. There is a chance, you will wait for a long time (if others are willing to pay more than you). But you always can rise the gas cap.
Types of tokens
Let’s see the most common types of tokens.
Token – token (Utility tokens), the most popular type
Remember amusements parks from the childhood? Roller coasters, carousels, hot dogs and cotton candy? At the entrance, you’ve got tokens to buy food and enter the attractions.
So, let’s pretend that a company is an amusement park and with the tokens, you can buy different services just as you do with carousels and hot dogs.
Now, to make the analogy perfect, let’s say that you can buy lots of tokens before the park is officially opened, or when it’s just opened. If the park becomes popular, its tokens will be much more expensive. Like $10 for a hot dog. But a smart child who bought the tokens before the opening will still enjoy his meal for $1.
This is basically the idea behind issuing and buying tokens. But if in the amusement park you buy the tokens at the entrance, where do you get a cryptocurrency token?
The answer is ICO – Initial Coin Offering.
Token – stock (Equity tokens)
In this case, ICO is completely equal to IPO. Usually, token-stocks are issued when a startup does not require a crypto-technology.
In this case, token holders will get dividend or fixed commission. They also will be able to take part is the company decisions. All this honor for supporting the project in the beginning of its life.
Token – credit
This is a loan; a holder gives to a startup. It’s another way to rise money. For example, you invest X to get X + 10 percent.
Token – combo
If you are not completely confused, you will be now: sometimes a token can belong to more than one type. For example, tokens Sia and Digix are both tokens and stocks. And Steemit has all the three types of tokens (Steem, Steem Dollars (SBD) and Steem Power (a denomination of VESTS).
How do you trade tokens?
This part is pretty similar to coins. You have to register on an exchange for buying and selling tokens.
The transaction conditions can be really complicated: the contract can include multiple rules like “you can sell it only before a specified date” or “after some date but only for a certain vendor.” So, when investing in tokens, you should read the “small letters” really thoroughly.
Bitcoin has always been the world’s main and most valuable cryptocurrency, and that’s not likely to change any time soon. Still, many people believe that Bitcoin has been in a crisis for quite some time now. Indeed, lately there’s been a lot of complaints from users not only having to wait for several hours until their transaction is confirmed, but also paying exorbitant fees in the process.
The problem here is that Bitcoin’s blockchain is only capable of processing up to 7 transactions per second, which causes delays and increases fees. If Bitcoin is ever to become a widely-adopted payment system, that figure really needs to change.
There have been many potential solutions to this problem, but perhaps the one with the most potential is the Lightning Network. Essentially, the Lightning Network creates an extra layer on top of Bitcoin’s blockchain, enabling fast and cheap transactions which don’t have to be immediately broadcasted to the community.
In short, that extra layer is comprised of two-way user-generated channels enabling users to send money to each other as often as they need to, instantly, with minuscule fees. Of course, there is a lot more to it, so check out our dedicated guide to learn exactly what the Lightning Network offers to the community.
Spoiler: it’s a lot - the Lightning Network was originally designed to solve Bitcoin’s problems, but it seems that a multitude of altcoins have taken a liking to it as well. Some are planning to implement the entire network as it is, while others are working on their own, albeit very similar solutions.
Perhaps technologies like the Lightning Network are the next logical step in the development of cryptocurrencies. Here’s our round-up of various networks’ takes on this latest trend.
Bitcoin and Lightning Network
This has been thoroughly discussed in our previous guide, but here’s what’s happening with the Bitcoin Lightning Network in a nutshell:
The network is still very much in its infancy and it isn’t fully live yet. However, its testnet, which is an alternative environment used for testing - not real world transactions - has been live since December 2017.
The beta-version of the network was launched on Bitcoin’s mainnet on March 15. At the time of writing, just over a month after the launch, the Lightning Network’s node count stands just below 2,000, which is already more than the number of nodes in Bitcoin Cash.
This implementation is called Lightning Daemon (lnd) and it was developed by Lightning Labs. Around the time of the launch, the startup also announced completion of a seed finance round. They’ve raised $2.5 mln, with contributions coming from some of the biggest names in the cryptocurrency industry.
Lightning Labs are not the only startup out there working on the Lightning Network. There are also other implementations being developed by Blockstream, ACINQ and other members of the community.
So, the completely streamlined and user-friendly version of the Bitcoin Lightning Network is yet to be released, but real Bitcoins have been sent and received via all three major implementations of the network, which also proved that all three of them are interoperable.
Lightning specifications have also been published, which enabled developers to begin working on various applications and other implementations of the network. Most importantly, you can actually already download Lightning Network wallets, albeit nearly all of them are beta-versions.
Here’s a list of some Bitcoin Lightning Network wallets that are already available for you to play with and explore the Lightning technology:
HTLC — a web wallet created by Alex Bosworth that enables you to start making payments immediately and without any configuration.
Lightning-app — a desktop wallet developed by Lightning Labs, available for Mac and windows.
Zap — a desktop wallet with a user-friendly interface, designed by Jack Mallers.
Eclair — a mobile wallet for Android devices designed by ACINQ.
Litecoin and Lightning Network
Scalability is a pressing issue for most cryptocurrencies in the market and Litecoin - which on many occasions has been referred to as ‘the silver to Bitcoin’s gold’ - is no exception. Litecoin has always been one of Bitcoin’s direct rivals, attracting users with its $0.40 transaction fee besides everything else.
Obviously, once the Bitcoin Lightning Network goes mainstream, Litecoin’s transaction fees are going to turn from an advantage into a major disadvantage overnight. So, perhaps it’s no surprise that of all the altcoins toying around with an idea of Lightning Network, Litecoin is the closest in terms of progress.
In fact, Lightning Labs’ implementation of the Lightning Network which launched on March 15 went live on both Bitcoin’s and Litecoin’s blockchains.
Moreover, back in November 2017 Lightning Labs announced that their initial test of a cross-blockchain atomic swap of tokens was a success. To put it simply, an atomic swap is a way of instantly exchanging one token for another between their respective blockchains, essentially bypassing cryptocurrency exchanges. Which blockchains was the initial testing done on? Bitcoin and Litecoin.
If everything goes well, the Litecoin Lightning Network is expected to be launched by the Q3 2018. Undoubtedly it will give Litecoin a major push towards mass-adoption. Charlie Lee, the founder of Litecoin, even went as far as to say that Bitcoin’s transactions will still cost users more than Litecoin’s, even with Lightning Network. We’ll just have to wait and see.
Ethereum and Raiden
The Ethereum network is faring better than Bitcoin in terms of the amount of transactions per second it’s able to process. It’s maximum capacity stands at around 20 transactions per second, which is nearly three times more than that of Bitcoin.
However, by its nature, Ethereum’s blockchain is way busier than Bitcoin’s as it not only works as a payment system, but also enables decentralized applications and initial coin offerings (ICOs). The vast majority of ICOs take place on Ethereum, which brings sudden floods of traffic as token sales take place, slowing down the entire network.
So, it only seems natural that such Ethereum will require a scaling solution that is fine-tuned to its needs. Ethereum actually has several different solutions in the works, but one is particularly noteworthy: Raiden.
The concept of Raiden is very similar to that of the Lightning Network: it provides an extra layer outside of the main blockchain where users can create two-way channels to conduct instant, nearly free and safe transactions.
One major difference between the two is that Raiden is ERC20 compatible, which means that every single token issued on Ethereum - and there are hundreds of them - will work with Raiden.
Currently there’s no concrete date set for the mainstream rollout. Raiden was launched on Ethereum’s testnet in September 2017, after which the team behind it held an ICO and raised around $50 mln for further development.
But, in December 2017 a lighter version of the protocol called µRaiden (pronounced “Micro Raiden”) was deployed on the Ethereum mainnet. Essentially, it does the same thing by facilitating instant, trustless - meaning you don’t have to trust or even know the other person - and free transactions.
The difference here is that the main Raiden protocol administers a network of two-way channels, while µRaiden allows someone to open a payment channel that is able to transfer tokens in one direction only. Those are extremely useful for micropayments, like paying for a cup of coffee.
ZCash and BOLT
Lightning Network will make transactions on all-transparent blockchains like Bitcoin a little bit more private, as all the micropayments made via its two-way channels don’t need to be broadcasted to the entire network. Still, the channel’s opening and closure will leave records of both participating parties as well as the initial and final splits of funds.
ZCash is a cryptocurrency network aimed at providing its customers with enhanced privacy and anonymity, so in order to scale their blockchain they had to develop their own solution. ZCash’s proposed extra layer is called ‘BOLT’ and is fully inspired by the Lightning Network.
What BOLT will do differently from the Lightning Network is that it aims to make the transitions performed within a channel unlinkable. It will be able to do so by utilizing two classic cryptography techniques: commitments - which will hide the value of the payment, and signatures - which will allow users to sign for transactions without revealing what exactly is being signed.
Ian Miers and Matthew Green, the two researches behind BOLT, claim that their creation will be able to work on top of any other cryptocurrency, provided it supports the required cryptography primitives. It will be able to work on top of Bitcoin right now, but with certain adjustments. Still, Miers said that it works a lot better on top of an anonymous cryptocurrency like ZCash.
Miers and Green are planning to release a prototype in the near future, but actually incorporating it into a cryptocurrency will take a more time.
Ripple and Lightning Network
The thing with Ripple is, it doesn’t actually need an extra layer to scale, as it was designed to handle a lot of transactions in the first place. According to the project’s website, it already consistently handles 1,500 transactions per second and it can be scaled to match Visa’s throughput.
However, back in August 2017 Ripple along with Bitfury, a full-service blockchain technology company, released a code that integrated Lightning Network into Interledger. Interledger is Ripple’s protocol developed to enable transactions between different blockchains.
Evidently, Ripple isn’t interested in Lightning as a way of extending the network’s capability. Instead, the project adopted it to make use of it’s atomic swap technology and make another step towards compatibility of different cryptocurrencies.
This is an extremely exciting development, as Interledger was already capable of fascinating transactions between not just public blockchains, but also private ones and, most importantly, traditional payment systems like PayPal.
According to Ripple’s CTO Stefan Thompson, the long term goal for the merger of those two technologies is to enable the crypto community to seamlessly trade between different cryptocurrencies as well as send funds to any given blockchain from PayPal, Alipay, bank accounts and vice versa.
Monero and Lightning Network
Monero is another privacy-oriented cryptocurrency, so implementing the Lightning Network as it is probably not going to fully work for them. However, there are plans of adding a second layer to the network, and the team sees Lightning as their preferred option.
All the infrastructure - including multisignature wallets which were added to Monero in September 2017 - for the Lightning Network to work is already there. However, before it can be implemented, the team will need to make some key improvements to the extra-layer in order to retain as much privacy as possible.
Still, it seems that Monero will mostly be focusing on the Lightning Network’s atomic swaps technology, not its scaling capabilities. Less than a month ago, one of the Monero subreddit moderators mentioned that the network has a dynamic block size, and they’ll scale on-chain ‘just sort of because’.
In the meantime, Riccardo Spagni, one of the project’s creators, has recently said that he is working with Litecoin in an effort to incorporate Lightning Network into Monero and make atomic swaps between the two blockchains possible.
Undoubtedly, this will lead to Monero users being able to swap their tokens for any other cryptocurrency utilizing the Lightning Network in the near future.
NEO and Trinity
NEO is very similar to Ethereum in a sense that it provides a blockchain-as-a-service platform, where users can run decentralized applications, execute smart contracts and hold ICOs. So, in the same way, the platform needed a specialized off-chain scaling solution and in keeping with ‘The Matrix’ theme, it’s called Trinity.
Trinity is still in the works, and to be quite honest, there’s no immediate need for it to be released. As it is, NEO can already process about 1,000 transactions per second, which is significantly more than most other cryptocurrencies, but the team is clearly thinking ahead.
Trinity, Raiden and Lightning Network are extremely similar, if not identical in what they do: taking payments away from the main blockchain and into user-generated channels, which in Trinity’s case are called State Channels.
What’s different between the three solutions is the underlying technology, as they need to be applied to three drastically differently designed blockchains.
Stellar and Lightning Network
Stellar is another network on this list that can already process around 1,000 transactions per second and, according the project’s founder Jed McCaleb it can easily scale to a lot more than that.
Still, just several days after Lightning Labs unveiled their beta of the Lightning Network, Stellar announced that they will be integrating it, becoming one of the first platforms to publicly announce integration.
Even though Stellar might not need to extend it’s capabilities just now, McCaleb outlines three major benefits to integrating the Lightning Network: scalability, privacy and interoperability. He also mentioned that even though Stellar can scale easily, Lightning will take it ‘much, much further’.
Moreover, Bitcoin Core contributor and the leading developer of Stellar’s Lightning Network stated that Lightning is the most important protocol happening in the cryptocurrency space right now and that any platform not preparing off-chain scalability solutions is going to “get left in the payment dust”.
Global Equity Markets: Mixed outlook keeps investors confused
Strong earnings reports were supportive of U.S. equities as Amazon saw revenue rise at its highest growth rate in more than six years, while net income doubled. Its stock jumped to a new record high on the news. Other tech leaders such as Microsoft and Intel reported strong earnings, but their stocks backed off following initial breakouts to new record highs. The S&P 500 however ended flat, down by only 0.01% for the week.
Rising interest rates remain a concern globally as U.S. Treasury 10-year yields briefly nudged above 3.0% on Wednesday, a key level watched by many market participants, before ending the week at 2.96%. Meanwhile, inflation pressure remains with the U.S. Labor Department reporting that wages and salaries rose at their fastest pace in 11 years.
U.K’s FTSE was the top performer, up 1.82%, for its fifth consecutive week of gains and highest weekly close since late-January.
The historic summit between North and South Korean leaders eased geopolitical tensions, but there is further progress to be made, and markets will be watching new developments closely. Japan’s Nikkei Index advanced by 1.38% to end at its highest weekly close in 12 weeks.
Chinese stocks are expected to underperform due to the threat of expanding U.S. tariffs on Chinese goods. Trade talks between the two countries continue next week in Beijing. China’s Shanghai Composite was up 0.35% for the week while Hong Kong’s Hang Seng dropped by 0.45%.
India’s BSE 30 Sensex: Equities could soon run out of steam
Since hitting a low of 32,483.03 six weeks ago, the Sensex has been able to rally as much as 7.95% as of last week’s high of 35,065.37. Momentum picked up a month ago as the index broke out of a bullish falling wedge pattern as it is coming off support of the 200-day moving average (brown line).
Last week’s 1.61% gain included the completion of a 61.8% Fibonacci retracement at 34,931.21, and the index remains strong. This would seem to support the idea that the index can keep rising at least to the next potential resistance zone. That price zone, which is identified with a red oval on the enclosed chart, is seen as the bottom of the lower rising trend line and the completion of the 78.5% Fibonacci level, which is at 35,596.51.
U.K.’s FTSE 100: strong but heading into resistance
The FTSE also broke out of a bullish falling wedge a month ago and has been rapidly rising ever since, in addition to closing strong each week. It’s come up 9.32% as of last week’s 7,507.10 high. Last week the FTSE topped its competitors with a 1.82% gain as it reached and exceeded the 61.8% Fibonacci retracement level (7,439.0) and ended the week back above its long-term uptrend line for the first time in 12 weeks. In addition, the FTSE is back above its 200-day moving average (brown line).
At the same time, the index now faces a resistance zone going up to the 78.6% Fibonacci retracement level at 7,594.5. That potential resistance zone is around prior multi-month resistance from 2017 and where two rising trend lines converge.
Cryptocurrencies: Performance mixed as retracements set in
The performance in the eight cryptocurrencies shown in the accompanying table was mixed last week, with Bitcoin Cash leading the way, up 18.2%, and Ripple taking up the backside, with a 12.9% decline. Overall though, digital currencies continue to recover and are in the early stages of potential uptrends since rallying off bottoms from four weeks ago. Further signs of strength are needed over the coming weeks as the trend structure organizes and pullbacks get completed.
Breakouts above falling trend lines have occurred in most of the eight cryptos we look at, and some have also risen above their 200-day simple moving average lines. Each is a sign of strength. When the next wave of buying comes those that are above their 200-day lines may move faster and further to the upside as they are showing relative strength in regards to the 200-day. The following digital currencies are above their 200-day lines: Bitcoin Cash, Ethereum, IOTA, Monero, and Ripple.
Keep in mind that once breaking through a clear resistance zone (trend line, for example) markets will eventually retrace the prior advance to some degree before the trend is ready to proceed. So far, the retracements of the recent strong advance have been mild. This means there could easily be further and deeper retracements before the uptrends are ready to resume. It would be healthy and normal for this to occur. If, however, the rallies occur sooner with breakouts above prior trend highs, this is a sign of strength, but it also increases the odds that price will get ahead of itself and a more chaotic retracement/correction could eventually follow.
Looking to the following week, there is some concern that downward pressure could prevail if the so-called ‘Tokyo Whale’ dumps Bitcoin into the market from the shuttered Mt Gox exchange. There is an estimated $170 million or more of Bitcoin that’s been moved out of the wallet and ready for sale. No one knows what’s actually going on in this regard but the perception of a big seller lurking could hamper investor sentiment and therefore dampen buyer enthusiasm.
Last week the XRP/USD pair advanced off its $0.45 bottom from a month ago stalled right at the 61.8% Fibonacci retracement zone of the internal downtrend. The high for the week and the uptrend was $0.964, for a 105.9% gain in less than five weeks. So far the pullback has been mild with support found where the 38.2% Fibonacci retracement level and 200-day moving average come together. Up until two weeks ago, Ripple had been below its 200-day line.
If it can make a decisive move above last week’s high the February swing high resistance zone, first around the 78.5% Fibonacci line of $1.06, and then the swing high around $1.23, are the next targets. A rally above that swing high will provide a more definitive bullish signal for the long-term recovery of the recent correction.
A drop below last week’s 0.758 support leads to a deeper correction where Fibonacci levels, as seen on the accompanying chart, can be used to gauge potential support zones.
Bitcoin Cash shows similar relative strength in that it moved above its 200-day line (brown) last week and has recognized it as support since. Leading the way, the BCH/USD pair had one of the strongest moves off the bottom, rising 162.3% as of last week’s high of $1,573 in four weeks.
If the recent low of $1,228.90 is broken to the downside, then it should target the 50% retracement at 1,086.3 next, followed by the 61.8% retracement at $971.40. A move above last week’s high and then the $1,636.8 swing high from February is the next key sign of strength pointing a likely continuation of the upside move over the intermediate-term. Keep in mind that nothing goes straight up, and pullbacks and consolidation periods are normal and healthy for the evolution of a trend.