25 April 2018

What is an NEP-5 token?

In order to get a good understanding of its meaning let us first establish that the term is combining two concepts, ‘NEP-5’ and ‘Token’.

So, what is a token?

If we go back to the origins of blockchain and cryptography, you would find that cryptographers, use the term to describe an encrypted string of data, but in our smart economy, a token is commonly known as a digital asset.

In other words, its the encryption that allows us to give value to data. By using programmable, ‘smart contracts’ we can turn real-world assets into digital assets, which we call tokens or coins.

The value appropriation of a token is described in these encrypted, ‘smart contracts’ and stored on a decentralized blockchain, turning them into immutable and tradable utilities.

Coin or token? The difference is somewhat blurry. Generally speaking, the term ‘Coin’ has been used more when describing a monetary asset, like Bitcoin, Litecoin or Monero. These digital currencies tend to have their own native blockchain.

The word token is often utilized when the smart contract adds functionality, utility above and beyond the concept of money, and is created and stored on a specialized, open-source decentralized blockchain platform. Some well-known platforms that offer this kind of functionality are the ‘NEO Smart Economy Network’ and the ‘Etherium platform with its ERC-20 tokens.

NEP-5 tokens and NEO’s ‘Open Smart Economy Network’

In our case, NEP-5 token refers to the asset, utility or application that is built on the NEO ‘Smart Economy Platform’ through the use of smart contracts by a third party.
NEP-5 is actually a protocol. NEP-5 (NEO Enhancement Proposal), refers to the ruleset that makes it possible for an application to operate on it.

If we want to further understand the NEP-5 token, we need to reinforce our understanding of digital assets and NEO’s powerful network features and technology.

In order to make it accessible for anyone to participate in a decentralized smart economy, it is essential that we can operate on a trusted open network of blockchains that can ensure performance, scalability, security, and cost.

If you consider the Bitcoin network, for example, it is slow and extremely expensive to maintain and therefore, it would not be a suitable network to build a smart economy on.
NEO, on the other hand, has created a high-performance, decentralized network, which is currently capable of processing one thousand transactions per second.

The NEO infrastructure is powered by a series of protocols, including, DBFT, NeoX, NeoFS, NeoQS, NEP-5, and others, which allow third-parties to easily build their own blockchain-based projects, on top of a secure, fast, and well-governed Network.
This is done by utilizing NEO’s ‘smart contract system’ or ‘NeoContract’. These contracts regulate the utility, asset or application.

A token is then used to allow the value of that asset or utility, to be transacted and stored securely on the NEO blockchain, while NEO supported ‘Wallets’ will allow you to personally consult, receive, hold or transfer your NEP-5 tokens on the network. By owning your personal private keys to your wallet, your crypto tokens will remain safe, and securely stored on the Neo Network. While you can buy NEP-5 tokens on a variety of popular exchanges like Kucoin or Binance, you can also choose to participate in an ICO.

Some of the more popular NEP-5 tokens today are amongst others, Ontology(ONT), Trinity (TNC), Deepbrain Chain (DBC), THEKEY (TKY), and so on.

The ICO Ecosystem

ICO stands for ‘Initial Coin Offering’. One of the major advantages for entrepreneurs in the blockchain space is that they can easily raise capital for their project, by allowing the community to directly participate in it through the sale of their tokens.

Usually, the project will publish a ‘White Paper’, touting the utility and underlying value of the project and its token. A smart contract will regulate the whole process of token distribution on the blockchain.

After the token release to your ‘NEO address’ on the blockchain, you will be able to consult and manage your balance by using an NEO wallet.

While in 2017, many ICO’s of ERC-20 tokens were launched on the Etherium network, 2018 has the NEO platform in the spotlight.

The NEO network is increasingly becoming popular, as it currently offers, a faster, cheaper and more user-friendly platform. This year we will continue to see a large number of NEP-5 token ICO’s being launched. So stay tuned if you are interested in participating in an “NEO-powered, NEP-5 token ICO”.

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