Tokens are a mechanism to represent a physical item or value in the digital realm. A token enables the movement or trading of the value or asset the token represents. Additionally, when trades are automated on a permissionless ledger such as Ethereum, it lowers the barrier to entry for those who want to . The conditions also allow more effective price discovery for individuals and groups.

Tokenized assets allows for goods to be traded as close to directly as possible, sometimes without an abstraction such as money or a gatekeeper, like an intermediary. Ether, the native token of Ethereum network, acts as the crypto-fuel required for the processing of a transaction. Imagine trading excess solar energy for a ride to work from your neighbor. In this case, a unit of energy could be tokenized and a certain driving distance could be tokenized as well. The tokens are exchanged on a decentralized platform, like etherex, which can with high fluidly for the parties involved. Exchange platforms can take a small fee for their services if they are providing value for the swap of value

Because Ethereum is an open protocol, the best exchange service for particular use cases will flourish. Services like Etherex will only continue to thrive as they add value in the system, because new ones will have access to the available protocol to outcompete stagnant incumbents. Exchanges could also be managed and governed only by the people that use them: keeping the cost at the market minimum. These models of cooperative governance are also being developed at ConsenSys.

Those token portfolios will become critical parts of our future reputation. They provide the basis for a reputation based economy, facilitating more organic connections between people and projects. For example, imagine Isaac who participated in the crowdfunded albums of 18 of the top R&B artists and 20 public art installation pieces. He wants to find collaborators in a future project that fuses both interests to create a hip hop hall of fame in Union Square NYC Holiday season.

Because individuals maintain their own reputation portfolios using a wallet like uPort.me, these organic connections are only facilitated on the terms of the actual people who control their wallets. Each person decides how they will want to display their tokens, and with whom. The systems are flexible. It’s up to us to decide what kind of tokens we want to issue, the rules we decide to have around them, and the kinds of contexts in which they will be useful.

For an in-depth overview on the tokens core component, check out Simon de La Rouviere’s talk at DevCon.

If you, the reader, were tasked with starting a company, the likely methods you would choose in order to initially fund it would likely be putting in your own money, asking those within your network of family, friends, and connections for money, going to an institution that could lend you the money (like a bank or a venture capital investor), or turning to a platform like Kickstarter to raise money from the crowd.

Now, imagine that you could tap into all of those funding sources at the same time. It would be a very powerful way to raise funds for the company you are trying to build. Issuing a token on your platform allows you to start your company using investment from individuals or entities that decide to contribute to your venture.

Coinbase, Coin Center, Union Square Ventures and ConsenSys created the following framework as a starting point for developers and companies entering the space and launching a token. It can be used to analyze the likelihood that a particular blockchain token (e.g. any given App Coin) would be subject to US federal securities law. It also establishes a set of best practices for token crowdsales. This is not legal advice, rather a framework for thinking about legal implications of tokens.

A Securities Law Framework for Blockchain Tokens - Coinbase, 2016 [10 min read, minus detailed analysis section]