Wednesday, 22 August 2018

Protocol Coins or Tokens, a Beginner’s Guide.

Crypto world is full of different types of tokens or coins with hell lot of confusion with their concepts. A similar new concept of Protocol token is here with no past just adds to the crypto world. The term protocol coin is totally new for all of us. As far as I have studied I came to know a lot about the protocol tokens and here I am sharing with you.

Protocol tokens or coins are the cryptographic units that require access to the services provided by the underlying protocol. Applications are created on these protocols just like we have dApps built on Ethereum e.g., EtherDelta, augur etc. Let us understand the concept of protocols.

protocol-coins

We all know that the internet is based on a protocol model which is the TCP/IP Protocol model. The top layer is the application layer and uses the protocols such as HTTP, FTP, IP, SMTP etc.  Based on these protocols applications like Google, Facebook, Twitter etc., is made which are now valued in billions. So, the applications based on these protocols has reached to the sky in terms of monitory value, but these protocols have no economic values. Reason being there was no way monetization of the layers and data decentralization. But Blockchain is gonna change this with its decentralized system and cryptographic tokens.

This is a bit difficult to understand as it is totally new, and we are habitual to our existing concept. However, this new decentralized version is soon going to replace the old centralized version.

How it will work:


Distributed database: Blockchain database is not stored at one single location. This layer is to push the value from the application layer to the protocol layer.

Structured database: a structured database is to show the value it is generating with the protocol.

Tokenization: what value it is creating.


This is the reason why the old thin protocol layer is shifting towards a fat protocol layer. We already know some of the protocol coins like ethereum, Qtum, 0x protocol, etc. The new protocol mechanism may help in increasing values of these coins in the future however that is totally my assumption and if you are willing to invest in them, do your own research first.

Crypto world is very unpredictive and at times volatile in nature too. Protocol tokens provide a financial system which is required to drive the economical mechanism however whether it will be implemented or not is still a question.