There prevails a great nervousness when one tries to differentiate between various types of coins and tokens which are popular in circulation across the crypto framework. Certainly, people might find it to be a hard nut to crack, given the fact numerous projects prevail and one needs to keep everything in his box of consideration. In this blog, we reflect upon the major differences between application coins and protocol tokens.
What is A Protocol and Protocol Tokens?
To begin with, let’s begin with app coins (app tokens). Scores of applications are triggered by these coins and such are said to have existed even before the unveiling of blockchains. We have an excellent example in the form of in-house currencies that are used in online games and fiat money is used to procure such tokens to be used in games, for purposes like to buy armour, chopper, fighter jets, guns, ammunition, etc in online shooting games. Before blockchains, there was no concept of protocol coins, where protocol means a bunch of ideas applicable to dictate the running of a framework. For instance, TCP/IP, a protocol system for the internet to function and which has united the whole world.
But later on, there emerged billion-dollar corporate giants such as Google, Twitter, YouTube, Facebook, etc, which best utilize such protocols to earn revenues. Investors and shareholders did not take it long to realize that such corporate applications (Facebook, Twitter, etc) should be invested in, for drawing rich dividends, rather than in protocols where returns are nil.
But here, the spotlight was put onto the blockchain, which completely overturned the tables and changed the whole scenario, because of two major reasons:
Clearly, there is no dominant authority which owns and controls the blockchain ecosystem and anyone can easily make its way into it. As such, tech-savvy can easily create software apps resulting in products, offered on top of such protocols. Besides, once the application starts getting popular, the worth of protocols which promote that application beneath increases equally.
Tokens Of Cryptography:
More details are given later on this. But there was a system which was based on fat protocols and thin applications.
Protocol layer got emphasized upon, only due to the cryptographic tokens and before the introduction of blockchain, no method was there to give incentives for protocols. Because of such tokens, participants drew incentives and they worked for the betterment of the protocol. In the following image, there is depicted how the internet stack is built as against the blockchain stack:
Today, the scenario has been so flamboyant that companies create their own protocols which produce a rising worth for investors as the latter reserve some tokens for themselves. Clearly, when the protocol is found to be of supreme quality, its value proliferates in a jiff and more people come forward to be a part of it. Such is exactly what Ethereum has experienced.
To simplify our understanding, we have a diagram which shows a series of events when the token value is one the rise:
- Projects of this nature find traction among investors and developers and investments are procured. Then, the overall project worth rises and improves market sentiments,
- Once the fame of protocol and its usability and versatility gets around, more developers are attracted to it which results in the more number of applications and products.
- Then, if applications are virtuous, more users and developers find their way to such applications which again kicks of the overall project value, again in the loop.
- The most supreme instance is that of Ethereum wherein crypto kitties pulled a thick bunch of users,
Nevertheless, to emphasize this point, protocol’s market worth is always found to prosper faster as compared to applications’ value, which is built on top of it and this relationship reflects the popularity and strength of protocol in comparison to applications.
Association of App Coins And Protocol Tokens:
As is clear by now that app coins are simply the tokens which propel the applications, that are being designed on top of protocols. Hence, if Ethereum is taken to be a protocol then its dominant application is Augur and Augur’s tokens are REP which is simply the protocol tokens.
Here is an example which shows how there is a close association between protocol tokens and app coins and we present an analogy.
Let’s have “Singapore” as the name of a blockchain, in the box of our consideration and it has a protocol law which allows transactions through a means of currency exchange only. To actualize this protocol, Singapore has a currency which is Singapore Dollars (SGD).
Now, in Singapore, there is an eatery which requires that tokens should be procured first through SGD from the counter. Once customers have such tokens, they are permitted to buy anything inside that eatery. Here, we need to pay attention to one thing that such tokens have their worth acknowledged by eatery only while outside, such tokens do not have any value.
As such, we can assume the eatery to be an application that is designed onto the protocol which is Singapore and the tokens of the eatery are app coins.
Today, there has been a widespread debate taking place across the global spectrum as to which layer and protocol (i.e. the application) is to be given importance to. But, on our part, we would not side any one party on this debate but we shall analyze each and every argument on every side of the debate.
We are hopeful that users are smart enough to judge the POV and points with the worth on both sides of the debate and you can create your own opinion in an effortless way.
App Coins Back Up And Support:
Token Soft’s CEO, Mason Borda has put an emphatic opinion that although protocol tokens carry much value to investors then, it is not a sound aspect for a business. He also maintains that developing unnecessary protocols makes the spectrum easy target for various looming risks, such as:
- Technical risks,
- Business Risks,
- Execution Risks
Hence, when finding it hard to identify App Coins and App Tokens which call the shots in the Crypto Market, one certainly needs a helping hand from renowned experts of the field, so as to safeguard his or her investment. Please rely upon Zuflo.io expertise and insights, regarded widely as we have evolved as the most notable player in the field.