Smart tokens are simply regular tokens that not only transmit value they contain but also all the information needed to execute a transaction simultaneously.
One way to differentiate regular tokens from smart tokens is that the former only transmits value, while the latter additionally contains in-built programmability to manipulate that value.
As the term suggests, smart tokens do this by incorporating smart contracts that can use all the information needed to authorize a transaction at once in three layers:
Smart tokens as such will contain enhanced information, such as counterpart identity, and invoicing data.
The central idea is this: when tokenized, unlawfully intercepted payment authorization data is rendered valueless because it simply isn’t there; it is replaced by a token. This means the data can, in effect, hide in plain sight.
The Bancor decentralized trading protocol created one of the earliest popular standards for smart tokens; in 2017, the company launched its own “smart tokens” that used smart contracts to implement direct convertibility within them.
Its use case was simple: tokens that could be bought or sold at any time directly via their own smart contract, without needing to go through an exchange or find a matching exchange. This means a direct on-chain token interaction, instead of Dapp interactions like on a typical DEX now.
Join the thousands already learning crypto!