5.1.3 Tokens vs Digital Money

In the arena of crafting a resilient tokenomics model, grounding in established monetary theories to confirm the fundamental model of token issuance and their intrinsic usage restrictions becomes paramount. This section endeavors to traverse through the origin and elementary approaches of traditional monetary models whilst probing their relevance and applicability in the burgeoning era of cryptocurrencies.

Money, a term ingrained since childhood, has metamorphosed in definition and essence with the surge of technological advancements. Traditionally acknowledged as a universal equivalent, capable of being directly swapped for goods and services, money could assume various forms, from commodities and securities to tokens and account records, pivoting on its core functions:

• Measure of Value: Facilitating estimation of commodity value by setting prices.

• Medium of Circulation: Mediating in the exchange process.

• Means of Payment: Engaging in transaction settlements, including credit transactions.

• Means of Accumulation and Saving: Participating in the process of income generation and distribution.

• Exchange Medium: Facilitating exchanges in relations between economic entities.

Though foundational, traditional and classical monetary theories exhibit substantial variability in interpretations and application (Grasselli and Lipton 2021). Digitalization, infiltrating our macroeconomic structures, necessitates a recalibration in our approaches towards money, extending beyond post-industrial society models to encapsulate online financial dynamics. Broadly, the classifications of monetary instruments are:

• Fiat Money: Legal tenders issued by sovereign states, commonly referred to as 'money'.

• Electronic Money: An issuer's monetary obligations in an electronic format, accepted for payments across various organizations.

• Digital Currency: A digital or electronic form of currency, potentially linked to national currencies or alternative exchange bases.

• Virtual Currency: Gaming currencies, utilized for transactions within online communities.

• Central Bank Digital Currency (CBDC): Electronic fiat, issued and regulated by a central bank, for settlement or value storage, somewhat paralleling cryptocurrencies but backed by centralized authorities.

• Cryptocurrency: A decentralized digital currency, varying in acceptance and categorization among countries (Yadav et al. 2022).

• Private Money: Non-state fiduciary money, with issuance and utilization restrictions being country specific.

A token denotes a value unit, distinct from cryptocurrency, intended to signify a digital balance in an asset, albeit the demarcation between tokens and cryptocurrency can sometimes be indistinct. Tokens can typically be subdivided into:

• Security Tokens: Primarily investment instruments, detached from network application access, purchased for receiving dividends or transaction fee portions.

• Utility Tokens (Appcoins): Intended to unlock access to distributed network services.

• Credit Tokens: Aimed at short-term borrowing with subsequent interest rate payments.

• Non-fungible Tokens: Unique tokens representing ownership of digital artefacts or properties within a blockchain.

Pivoting from von Hayek's denationalizing money proposition (Hayek 2008) to the current global discourse on cryptocurrencies and tokens, the navigation through types, theories, and practical applications of monetary instruments becomes a complex yet integral aspect of developing and understanding tokenomics, especially in the context of technologies like the blockchain. This exploration not only lays a foundation for comprehending various monetary forms but also for constructing, adapting, and innovating within the dynamic world of digital currencies and tokens, setting the stage for further discourse and developments in the digital financial ecosystem.