Basics of Tokens
The main focus of this book will be to create smart contracts that represent tokens. There are two types of tokens: utility and security (Source).
Utility tokens are essentially cryptocurrencies that are used for a specific purpose, like buying particular goods or service. For example, if you want to store information online, the most common way today is to become a customer of a hosting service like Google Drive, Dropbox or Amazon Web Services. You reserve a certain amount of storage space on those companies’ servers and pay for it with dollars, euros, yen or other national currencies.
But there is another way. The Filecoin network, for instance, expects to provide similar cloud storage services without operating buildings full of massive servers. Instead, its users will store their data, in encrypted form, on the spare hard-drive space of other regular people. This needs a different way to track how much space a person uses, and a new way to pay those people whose hard-drives host the data. Enter the utility token, in this case Filecoin.
As a customer stores more data, the network will deduct from their balance of Filecoin tokens and will send those tokens to each storage provider based on how much data they’re hosting. Customers can buy more tokens with whatever currency they wish, and hosts can exchange them for any currency they choose – or keep them to spend on storage of their own data.