Today, the crypto world has become quite popular. Among crypto assets, ‘Token’ stands out as a concept that we often hear. You may even know that Bitcoin is also defined as a ‘crypto token’. In this sense, from a technical point of view, all crypto assets can be defined as tokens. So what exactly is a token?
Tokens are assets with a large market volume and usage area today. On the other hand, you may have often heard of various concepts such as cryptocurrency, coin, token, digital money and altcoin. However, although these concepts are located in the same ecosystem, they differ from each other. In fact, both tokens and coins are known as a crypto money. The token describes the digital assets that reside on the blockchain ecosystem. However, coin and token are two different types of crypto money.
Tokens, one of the most common types of the cryptocurrency industry, represent an asset and a specific use. It is necessary to create a virtual wallet in order to receive tokens that exist on a blockchain. The use of virtual wallets is valid in crypto money exchanges.
So what are the concepts in the crypto world that has become popular since 2020? What does the token mean? How does the hugely popular token system work? What are the types of tokens and why are they important? What is the difference between token and coin? If you are looking for answers to these questions and wondering what Token means, this content is for you! Now let’s start with the answer to the question ‘What is Token?’
What is a Token?
In its technical sense, the concept of ‘token’ has the same meanings as ‘crypto money’ or ‘crypto asset’. However, it also has specific meanings. For this reason, questions such as what is a token and whether it is different from crypto money come to the fore. A token can be expressed as a unit of value that resides on an existing blockchain. Its value can be in the form of points, in-game items and coins. So what exactly is a token? What are the types of tokens? What is a token and why is it important? Let’s look at the answers to these questions about the token together.
The creator of the token is Michael Egorov, a Russian scientist. Token refers to all cryptocurrencies. However, Bitcoin and Ethererum are separated among them. The reason for this is that Bitcoin and Ethereum are defined as the two largest cryptocurrencies. On the other hand, Bitcoin and Ethereum are also technically a token.
Specifically, the answer to the question of what is a token is the concept that defines crypto assets running on the blockchain of another cryptocurrency. In other words, they are crypto coins that are not built on independent blockchains. For this reason, they are created by integrating into existing blockchains. It also does a lot of decentralized finance, which DeFi does. A cryptocurrency like Bitcoin has its own private blockchain. However, DeFi tokens work on the other existing blockchain.
In addition to all this, there are several different types of tokens, which are the most known. These are; NFTs are token types such as DeFi Tokens, Metaverse Tokens. The most well-known token with the highest market capitalization is Tether (USDT). US dollar-indexed Tether (USDT) is a stablecoin. It is also located on the Ethereum and Bitcoin blockchain. Tokens such as Decentraland (MANA), Compound (COMP), Chainlink (LINK), The Sandbox (SAND), DogeCoin (DOGE) and Shiba Inu (SHIB), which also fall into these categories, are among the most well-known.
How Does the Token System Work?
One of the important questions to be asked after the question of what is a token will be how the token system will work. Tokens have a unit value. It can also represent value, service or product. Therefore, these values are traded over.
They are also likely to represent not only a value, but a product or a service. Therefore, creating tokens is easier than creating a coin because it is created on an existing blockchain. On the other hand, most tokens today are built on the Ethereum blockchain.
Tokens help make decentralized exchanges possible. On the other hand, it has a variety of potential functions, from video games to selling items. It can also be exchanged and stored for any cryptocurrency. Tokens purchased represent a share in the company, such as the purchase of a company’s stock in an ICO or IPO. For this reason, the answer to the question of what is a token is met with crypto money assets, crypto assets or equity.
Crypto parTokens can be owned through a exchanges. There are domestic and foreign resources in crypto money exchanges. In addition, like all crypto assets, tokens work on the same logic. However, the transaction fee and speed of tokens are faster than coins.
Usually, tokens are used to raise funds in ICO or IPO mass sale on the stock exchange. ICO means ‘Initial Coin Offering’ in Turkish. IPO means ‘Initial Public Offering’ in Turkish.
Finally, tokens usually have the ERC20 standard. However, there are three different standards among the token standards. These are; ERC-20 is ERC-223 and ERC-721. ERC-20 is the most commonly used. ERC-721, on the other hand, is an important standard that enables the creation of non-fungible tokens on the Ethereum platform.
Why is Token Important? What are the Types?
One of the main questions that can be asked after the question of what is a token and how it works will be why tokens are important and what their types are. In addition to these general definitions, there are crypto asset categories called tokens. If you are related to the concept of tokens and are in the research stage, it is useful to know these categories. So what are these categories that are diversified as tokens?
There are three main types of tokens on blockchain technology. These are; Service Token is Securities Token and Stock Token. The Service Token provides access to services or products, such as digital content. The Securities Token represents real-life physical assets.
The Stock Token corresponds to partial ownership in the company. Tokens can be divided into four groups according to their functions. These are; Credit token, Utility token, Equity token and governance token. On the other hand, token types are produced and divided into groups to represent any product or service. So what are these types of tokens?
- DeFi Token: It is a new world of crypto-based protocols that aims to recreate the functions of the traditional financial system. These protocols perform a wide variety of functions. For this reason, it produces tokens that can be exchanged or stored like any cryptocurrency.
- Governance Token: The token is the center of its holders. It also has a say in the future of the protocol or implementation that does not have a board of directors or any other central authority.
- Unique Token (NFT): NFT is a unique digital asset. It represents the property rights of the real being. It can be important to make it difficult to copy digital works. On the other hand, it is used to create a limited number of digital artworks and sell unique virtual assets.
- Securities Token: It is a new asset similar to traditional securities such as stocks and bonds. The token is used to sell shares in a company or other venture.
- Credit Token: It is a token produced for lending purposes. It acts as a bridge between investor and entrepreneur. In addition, entrepreneurs can borrow from investors.
- Utility Token: It is known as a utility token produced for service purposes. They are not used for investment purposes.
- Equity Token: It covers the concept of initial coin offering (ICO). It is similar to the IPO in stock. At the same time, it is offered to the public from the initial establishment and market launch stage. Investors also provide support in the first stage.
- Governance Token: It is known as a governance token. Owners are also given a say in the governance of a particular service or project.
What is the Difference Between Token and Coin?
Following the question of what is a token, the concepts of token and coin are often confused in the crypto world. So what is really the difference between coin and token? One of the main differences is that the coin is created with the encryption technique using cryptology. On the contrary, the token is obtained using the already created blockchain.
Over time, the coin is progressing by adding value to its value. Coin is a type of digital currency. It is the word given to crypto assets created on their own blockchain. However, the token is considered a symbol of the contract. It consists of crypto assets built on the already created blockchain. On the other hand, it is necessary to create and use a different blockchain for each of the transactions of the coin types.
Since there is no need to create a blockchain, it is quite easy to produce tokens according to the coin. For developers who want to make their own crypto presence, producing coins is a serious technical undertaking. For this reason, it is a more practical method to produce tokens.
It is necessary to develop a blockchain for the coin. However, this is not necessary for tokens. On the contrary, tokens are created on the existing blockchain. Moreover, the token is a digital asset. However, the coin is a digital currency. Crypto money can be purchased with the coin. With tokens, it is possible to buy services or products.
Token varieties are produced with different projects. It is also known as digital assets used as a payment method. When buying crypto money with a coin, a service or product is purchased with a token. Coins can be bought and exchanged by splitting them into pieces. On the other hand, tokens can be used for unique projects such as NFT. NFT, on the other hand, has a non-negotiable feature.
In this content, we tried to make explanations about token, one of the important concepts of the crypto world. We also talked about how the token system works. We touched on why tokens are important and their types. We also explained the differences between coin and token, two concepts that are often confused.
Nowadays, almost everyone has some level of knowledge about the crypto world. The first emergence of the crypto market was in 2009 with the Bitcoin blockchain and cryptocurrency. In 2020, the token has become quite popular. In a very short time, it has become one of the most used investment tools.
Concepts such as cryptocurrency, tokens or coins can be confusing for those who are new to the crypto world. But in summary, tokens are not cryptocurrencies like Bitcoin or Ethereum. However, they are units of transferable value given on the blockchain. At the same time, tokens are divided into classifications according to various characteristics.
Given the potentials about the future of crypto, we are very curious about the future of the link between real-world assets and digital assets. On the other hand, if you are interested in investing in cryptocurrencies, it is good for you to understand the concepts in the crypto world. As the blockchain industry continues to mature, the number of digital assets will also increase.
But how well do you guys dominate the crypto world? Have you heard of concepts such as cryptocurrency, crypto asset, token or coin? You can share your thoughts about tokens with us in the comment section below.
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