A hand holds a mobile phone on which a blockchain logo can be seen.

Tokens — your dig­i­tal return

In this arti­cle, you will learn how tokens work and how Wat­ti­fy uses them to make your invest­ments as quick and easy as pos­si­ble.

What are tokens?

Imag­ine you’re at a fair. You have won tokens while throw­ing cans, which you exchange for an over­sized ted­dy bear. Tokens fol­low this prin­ci­ple of trans­ac­tion. A token sym­bol­is­es a val­ue that can be con­vert­ed into an equiv­a­lent val­ue. Tokens can thus take on a task — like mon­ey in the econ­o­my. The deci­sive dif­fer­ence: they are gen­er­at­ed elec­tron­i­cal­ly alone. They are cre­at­ed, exist and func­tion in dig­i­tal space. To cre­ate a token, you need a blockchain (see our blog post on blockchains).

On the blockchain, tokens can be pro­grammed as so-called smart con­tracts” to take on many dif­fer­ent roles. They can not only be a means of exchange and pay­ment, but also rep­re­sent social val­ues. For exam­ple, a com­mu­ni­ty could dis­trib­ute tokens that give the hold­ers co-deter­mi­na­tion rights. Such tokens are called util­i­ty” tokens because they serve a pur­pose tied to an explic­it sys­tem. With­in this frame­work, there are no lim­its to the pos­si­ble appli­ca­tions. The­o­ret­i­cal­ly, a teacher could dis­trib­ute a Home­work” token to his stu­dents to organ­ise their home­work.

Impor­tant: Accord­ing to the law, util­i­ty tokens may not be used for prof­it. This is what a sec­ond, often used type of token is for — secu­ri­ty” tokens. As the name sug­gests, they embody secu­ri­ties or shares in finan­cial projects. A prop­er­ty, for exam­ple, can be bro­ken down into numer­ous assets for investors with the help of secu­ri­ty tokens. No mat­ter what the invest­ment object, tokens can trans­late it, sim­pli­fy it and make it avail­able to enable more peo­ple to access the finan­cial mar­ket.

Tokens can be divid­ed into fun­gi­ble” and non-fun­gi­ble”. Fun­gi­ble tokens have iden­ti­cal prop­er­ties. They are inter­change­able with some­thing of the same val­ue and can serve as cur­ren­cy in the form of coins. Non-fun­gi­ble tokens, also called NFTs”, have no unique coun­ter­val­ue. They rep­re­sent unique val­ues. You can­not exchange them 1 for 1. A paint­ing by Leonar­do da Vin­ci would be a tan­gi­ble NFT, a video game skin a dig­i­tal one. Data on NFTs, such as infor­ma­tion on the cre­ator of a prod­uct or art­work, can be stored on a blockchain and help pro­tect copy­rights.

Laptop with a blockchain icon on the screen
Tokens describe digital assets that are built on a blockchain.

Advan­tages and dis­ad­van­tages of tokens

Since tokens are based on blockchain tech­nol­o­gy, they inher­it its strengths and weak­ness­es. They are organ­ised in a decen­tralised way. The blockchain net­work with its demo­c­ra­t­i­cal­ly man­aged data ensures trans­paren­cy and secu­ri­ty. Exter­nal ser­vice providers, such as a bank in the case of a finan­cial trans­ac­tion, remain out­side. This sim­pli­fies the process and saves fees. The direct path pro­motes coop­er­a­tion between users and providers or between con­sumers and pro­duc­ers. A com­mu­ni­ty can devel­op around a project. The more par­tic­i­pants a com­mu­ni­ty has, the more secure and influ­en­tial its tokens become.

If the blockchain runs on the proof of work” prin­ci­ple, the ener­gy required by the servers to host the tokens becomes a dis­ad­van­tage. The blockchain grows with each trans­ac­tion and with it the records pro­duced and their con­sump­tion of resources. A high user fre­quen­cy also throt­tles the speed of the process­es.
Two people check investment returns on a laptop and mobile phone.
The return can also be represented digitally as a token.

How does Wat­ti­fy use tokens?

With Wat­ti­fy, the tokens are an indi­ca­tor of the sta­tus of your invest­ment. As soon as you have invest­ed indi­rect­ly in a project and this is realised, your asset token” is cre­at­ed. This rep­re­sents your invest­ment amount in the form of dig­i­tal secu­ri­ties (cryp­to secu­ri­ties) and is more or less the first token on your way. Once enough cap­i­tal has been raised, the project can start. We store the return on your invest­ment in return tokens”. When you request a pay­out by press­ing a but­ton in the Wat­ti­fy app, you receive the pro-rata dis­tri­b­u­tion of the prof­its. Depend­ing on the secu­ri­ty and the deposit­ed con­tract, your invest­ment is repaid in parts or as a one-off pay­ment at the end of the term. Here, your asset tokens are con­vert­ed back into euros and trans­ferred to you. As you can see, tokens help you keep track of every step in your invest­ment process.

You get a wal­let to store your tokens. This is the access soft­ware — your dig­i­tal wal­let. This is where your cryp­to secu­ri­ties are stored as asset tokens, as well as the returns already accrued on them as return tokens. With token-based crowd­in­vest­ing, you save on unnec­es­sary fees when pro­cess­ing trans­ac­tions and end up with more for your­self.

Tokenis­ing process­es, as men­tioned, costs ener­gy. The good thing about Wat­ti­fy is that the servers for stor­ing the tokens are pow­ered exclu­sive­ly by renew­able ener­gy. We gen­er­ate the tokens for your indi­rect invest­ments on our own cli­mate-neu­tral blockchain. So you can be sure that they come from a sus­tain­able source that meets secu­ri­ty stan­dards.

Con­vinced by token tech­nol­o­gy? Then get start­ed! Thanks to the scal­a­bil­i­ty of tokens, your medi­um-term invest­ment can start from as lit­tle as €1. No mat­ter what your finan­cial strength, with Wat­ti­fy tokens you can make a return and cre­ate impact — quick­ly, eas­i­ly and in a cli­mate-friend­ly way.

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