In the blockchain world, the word ‘token’ and ‘coin’ are often bandied about. But what are tokens, how do they differ from coins, and how can you ‘use’ a token?

A cryptocurrency is often referred to as ‘coins’ or ‘tokens’. Their purpose is to be items of inherent value that are designed to enable purchases, sales and other financial transactions. They are intended to provide many of the same functions as long-established currencies.

Bitcoin is the primary cryptocurrency: the first, the most valuable, and perhaps the most well known and most-used. It serves many purposes, but they are almost entirely financial. Coins are used on their own blockchains, so Bitcoin is used on the Bitcoin blockchain, Ether coins are used on the Ethereum network and so forth.

Tokens, on the other hand are different in a big way, as they are created and used on an existing blockchain. Tokens are generally assets that can represent proof of ownership or even membership. As tokens are already being used for an extraordinary range of purposes, a growing number of specialized blockchains have been developed with native intent to support tokens, the most popular of which is Ethereum and their ERC standard tokens.

The value of a token can be determined by its purpose and popularity, but as most tokens have a fixed or limited supply, their value is often related to supply and demand. But this is not always the case — with Ethereum for example, there is a fundamental intent to continue minting new tokens, covering transaction fees and executing smart contracts. However, speculation on the value of a token is (supposed to be) secondary to its actual use.

Although there is no definitive classification, tokens generally fall into two categories: Utility and Security.

A Security Token represents an asset or an entitlement to an earning stream or dividends. In terms of their economic function, the tokens are comparable to equities, bonds or derivatives, and are expected to make a profit.

A Utility Token provides access to the goods and services that a project launched or will launch in the future, and can be used as a type of discount or premium access to the services. A lot of tokens tend to be used specifically as a funding mechanism for companies.

chiliZ ($CHZ) is an ERC20 utility token on the Ethereum blockchain that serves as the digital currency for the chiliZ and Socios.com platform. In launching our platform, alongside other sports blockchain ventures, a new category of token has emerged — the Fan Token. Once onboard the Socios.com platform, our (yet-to-be-announced) club partners host what we have termed a Fan Token Offering (FTO). Fans must purchase $CHZ via a cryptocurrency exchange in order to acquire Fan Tokens. These tokens — which are specific to a team or club — are a finite, digital asset that provide access to an encrypted ledger of voting and membership rights ownership.

Ownerships offers fans the ability to participate in fan-led decisions through a mobile voting platform, as well as serving as a ticket into a secure, exclusive inner circle of fans, with shared passions and beliefs. The more tokens a fan holds, and they more they vote, the higher the clout rating of that fan, moving them upwards through different reward tiers until they have access to the biggest VIP benefits that are on offer.

Football clubs intend to use Socios.com as part of their fan engagement strategy to continue to build their global fan bases, particularly in Asia, where the football fan community is experiencing exceptional growth. Socios.com connects the clubs to their fan bases, securing additional revenue streams that are digital, secure, transparent and entirely connected to the real fan experience.