Tokens are digital assets that operate within a specific blockchain ecosystem. These are programmable assets that are generated and controlled through the use of smart contracts on established blockchain networks such as Ethereum or Binance Smart Chain.
Tokens can have fungible or non-fungible value, and they stand for a variety of resources or features. Tokens are created and managed within established blockchain networks, utilising their underlying technology for transactions, security, and verification.
Purpose of Tokens
- Purpose of Tokens
- Types of Tokens
- How Were Tokens Created?
- Difference Between Crypto Tokens and Cryptocurrencies
Some tokens, like Bitcoin, function as digital currencies. Within their own blockchain networks, they function as a unit of account, a store of value, or a medium of exchange.
Tokens like utility tokens are made to grant access to particular goods, services, or features in decentralized apps (dApps) or blockchain systems. They can represent ownership rights, access to features, or voting power within a particular ecosystem.
Tokens can also be used to represent physical assets like commodities, real estate, or corporate shares. Like traditional securities, they can grant token holders income or ownership rights, subject to regulatory compliance.
Types Of Tokens
Here are some common types of tokens:
Utility Tokens: These tokens are intended to grant users access to a certain good or service within an ecosystem. They facilitate the execution of tasks, provision of features, and payment of services by users inside a decentralised application (DApp).
Security Tokens: These tokens serve as a proxy for ownership of stocks or other real assets.
They often fall under securities regulations and offer investors rights to dividends, revenue shares, or some form of ownership in the issuing company.
Asset Tokens: Tokens backed by tangible assets, such as commodities, precious metals, or real estate, are known as asset tokens. They offer digital trading or ownership transfer capabilities in addition to fractional ownership.
Stablecoins: These tokens have a value based on a stable asset, like a commodity or fiat money. In the cryptocurrency world, they are employed for trading or as a store of value with the goal of reducing volatility.
Governance Tokens: These tokens grant holders the right to participate in decision-making processes within a decentralised platform or protocol. Holders can vote on proposed changes or updates to the ecosystem.
Non-Fungible Tokens (NFTs): These tokens are unique and indivisible, representing ownership or proof of authenticity of digital or physical assets. They are often used for digital art, collectibles, in-game items, and more.
How Were Tokens Created?
Tokens are created through tokenisation, a process involving the conversion of real-world or digital assets into a digital token format. They operate based on predefined rules and functionalities established through smart contracts, allowing for secure and transparent transactions while reducing the need for intermediaries.
Different blockchains have their token standards; for instance, Ethereum has the ERC-20 standard for creating tokens, defining a set of rules and functionalities that tokens must adhere to in order to be compatible with the Ethereum ecosystem. These standards ensure interoperability and ease of use within blockchain networks and applications.
Here are examples of different types of tokens:
Binance Coin (BNB)
Basic Attention Token (BAT)
Harbor Real Estate Token (HBR)
Difference Between Crypto Token And Cryptocurrencies
Cryptocurrencies and crypto tokens both operate within blockchain ecosystems, but they serve distinct purposes.
Cryptocurrencies like Bitcoin, Ethereum, and others are digital currencies designed as mediums of exchange, aiming to facilitate secure and decentralized financial transactions. They function as units of value and typically have their own independent blockchains. These currencies serve as stores of value, means of payment, and, in some cases, potential investment assets.
On the other hand, crypto tokens represent assets or specific rights within a particular blockchain infrastructure or decentralised application (DApp). Tokens can have various utilities such as granting access to a platform, enabling specific functionalities, representing ownership of assets, or facilitating governance within a project's ecosystem.
While cryptocurrencies focus on being alternative forms of money, tokens have broader applications beyond just being a medium of exchange, often tailored to serve the specific needs of decentralised platforms, services, or communities within the larger blockchain landscape.