What are tokens?
With the development of crypto, a lot of new terms have emerged. Coins, tokens, NFTs, altcoins, stablecoins, and more. The untrained person can get confused by the terms. And many people still think that tokens and coins are the identical ones.
We tell you about define token and why they shouldn’t be called coins.
What is a token?
A token is a crypto-asset that grants privileges and bonuses within a particular project. On the selected project, a token can be used to pay for facilities or things. In addition, tokens give individuals access to specific types of exclusive products or even ownership in the control of the company.
It all depends on the project that issues the token.
In addition, the token can be exchanged or sold after the price goes up, which also allows you to make money.
To make an analogy with the real world, a token can be compared to a subway ticket. You buy a subway ticket and can ride any route, but only within the subway of the city where you bought it. You can get off and sell that ticket as well. A token in the cryptoworld works about the similar way.
The difference token and coin
A coin is a means of payment. You can buy goods, exchange a coin for another coin, but can’t get any bonuses or privileges.
But the major point of difference of a token and a coin is the method of making it. Whereas a coin, such as bitcoin, is built on its own blockchain, a token is built on an existing platform.
The best known blockchain for issuing tokens is Ethereum. This network has its own ETH coin. But any user can create their own crypto token on the platform, functioning inside the Ethereum, where all information will be recorded.
The most popular examples of tokens are:
Tokens differ from each other in the functionality they provide.
- Asset/security tokens. Investment tokens. They give the right to own shares, receive dividends and influence the development of the project. The peculiarity of such assets is government regulation and customer identification. Therefore, supporters of decentralized cryptocurrencies such tokens may not be suitable.
- Utility tokens. Provide access to a project’s product or service. Also give an opportunity to earn on the difference of the token price when buying and selling, if the project develops.
- NFT tokens. Non-exchangeable tokens used to prove ownership of an object. For example, music, pictures, photos, GIFs, etc. Essentially, tokenization is possible for anything. NFTs are growing in popularity, large corporations are entering the market, and more and more stars are creating their own NFTs.
The main advantage of tokens is the great opportunities for investment and profit. You don’t need a bank account for transactions with them, all you need is access to the Internet. Buying tokens can be a promising investment. After all, after listing and printing, the price of tokens can be understood dozens of times.
Last Updated: November 3, 2022