Crypto Tokens
As you learn more about crypto, you’ll notice that different terms describe cryptocurrencies. Tokens are another name for them. Other people refer to them as coins or altcoins. Some of these terms may appear interchangeable, but they all refer to different types of cryptocurrency. The term “crypto token” represents a particular virtual currency token or the method by which cryptocurrencies are denominated. These tokens are representative of fungible and tradable assets or utilities on their respective blockchains. Crypto tokens commonly raise funds for crowd sales, but they can also replace other items. These tokens are typically created, distributed, sold, and circulated via the standard initial coin offering (ICO) process, which includes a crowdsourcing exercise to fund project development. In the coming paragraphs, we will discuss
- What is Cryptocurrency?
- Difference between Cryptocurrency and Token
- How does a Crypto Token work?
- Common Uses of Crypto Tokens
- Crypto Tokens vs. Cryptocurrency Coins
- Examples of Crypto Tokens
- Why are Crypto Tokens Necessary?
- Advantages of Crypto Tokens
- Special ConsiderationsÂ
What is Cryptocurrency?
Cryptocurrency is a digital payment system that does not rely on banks for transaction verification. A peer-to-peer payment system allows anyone to send and receive money anywhere. Cryptocurrency payments exist solely as digital entries to an online database describing specific transactions rather than as physical money carried around and exchanged in the real world. A Public ledger records transactions involving cryptocurrency funds. Digital wallets keep cryptocurrency.
The term “cryptocurrency” refers to encryption to verify transactions. Advanced coding is required to store and transmit cryptocurrency data between wallets and public ledgers. Encryption’s goal is to provide security and safety.
Difference Between Cryptocurrency and Token
Tokens and cryptocurrency are digital assets on blockchains, and their use is interchangeable. The primary distinction between a token and a cryptocurrency is that cryptocurrencies, such as BTC, RBTC, or ETH, are native assets of a blockchain. In contrast, tokens are built on an existing blockchain using smart contracts.
How does a Crypto Token work?
Crypto tokens are valuable assets because they are cryptocurrencies. They are typically transferable, tradeable, buyable, and sellable and are storable in blockchain wallets. A blockchain wallet is a software or hardware device that keeps cryptocurrency. Blockchain processes the transactions involving crypto tokens. For example, if it is an ERC-20 token built on Ethereum, all transactions for that token will be handled by the Ethereum blockchain.
In addition to serving as a currency, crypto tokens can perform various other functions.
Most Common uses for Crypto Tokens
- Decentralized Finance (DeFi): It refers to alternative financial systems based on blockchain technology for financial budgeting and reporting. Instead of obtaining a loan from a lender, You could use cryptocurrency tokens as collateral and obtain one through a DeFi platform. Every DeFi platform has its own token that serves as the platform’s official currency.
- Governance tokens: These cryptocurrency tokens allow the holder to vote in a cryptocurrency project. Token holders have the ability to make and vote on proposals that help shape the future of a specific cryptocurrency. The more tokens you possess, the more votes you have.
- Non-fungible tokens (NFTs): Crypto tokens representing digital asset ownership; the cryptocurrency token stores ownership information. NFTs can be used to determine who owns a unique digital image, GIF, or online game character.
The aforementioned DeFi platforms rely on investors who lend their cryptocurrency funds. As a reward, investors receive cryptocurrency rewards. These rewards come in the form of crypto tokens.
Crypto Tokens vs. Cryptocurrency Coins
Depending on whether it is the native cryptocurrency for its blockchain, a cryptocurrency can be a token. While cryptocurrency coins have their blockchains, cryptocurrency tokens do not.
Consider the cryptocurrency Ethereum as an example (CRYPTO: ETH). Ethereum is a blockchain, and Ether is the blockchain’s native cryptocurrency. Therefore, Ethereum is a cryptocurrency because it has its blockchain.
One of Ethereum’s distinguishing features was that it was the first programmable blockchain. Because it is programmable, developers can launch their cryptocurrencies. These cryptocurrencies are crypto tokens because they use Ethereum’s blockchain rather than their own (the official term for tickets built on Ethereum is ERC-20 tokens).
Previous cryptocurrencies, such as Bitcoin (CRYPTO: BTC), did not have this feature. However, Ethereum did, vaulting it to the number two spot in market capitalization.
Tokens have the capability to create far more scam projects than coins because they are far easier to create. That is not to say that all tokens or currencies are bad investments. On the contrary, there are a plethora of tokens with exciting applications. But, of course, some cryptocurrency coins have no unique applications or competitive advantages.
Examples of Crypto TokensÂ
Now that we have explained what crypto tokens are, let us discuss a few of the most popular ones:
- Chainlink: It is an oracle network that enables blockchain smart contracts to receive real-world data. Ethereum blockchain aids the making of Chainlink.
- Tether and USD Coin: They are stablecoins linked to the US dollar. Ethereum blockchain aids Tether, aiming to keep their prices at $1.
- Uniswap (CRYPTO: UNI): It is the same-named decentralized crypto exchange token. The Uniswap exchange, like the others on this list, provides cryptocurrency trading with no central governing authority and is built on the Ethereum blockchain.
- Shiba Inu (CRYPTO: SHIB): It is a contentious meme token whose value skyrocketed in 2021. Unfortunately, that success was mainly due to its popularity; the token’s value has since dropped significantly.
Understanding crypto tokens is essential if you want to invest in cryptocurrency. You will come across many of them, and knowing what they are will help you evaluate them as potential investments.
Why are Crypto Tokens Necessary?
Easy and Simple
Tokens enable developers to create a cryptocurrency without having to build a blockchain. It is significant because it makes cryptocurrency development much faster, simpler, and less expensive.
Swift and Cheap
Blockchain development is a complex technical undertaking for developers who want to create their crypto coin. A blockchain must process transactions quickly and cheaply while resisting attacks so that hackers cannot steal cryptocurrency.
Building the blockchain is also not the end of the process. A new cryptocurrency also requires validators to confirm transactions. Because cryptocurrencies are decentralized, they rely on individuals opting to become validators and lend computing power to the blockchain.
Advantages of Crypto Tokens
Market with No Friction
Tokenization is the first step in creating or representing attestations on the blockchain. After tokenization, it can be easily traded or exchanged for other purchases on a global scale without the need for any intermediaries. It eliminates all of the friction in creating a market today, resulting in a genuinely frictionless market.
In-depth Integrations
The ability to culminate and integrate different services to create good and meaningful user experiences was one of the key benefits that the web brought to humanity. However, integrations continue to be difficult because they require dedicated planning, design, and implementation. In a tokenized world, however, integrations can be decentralized without the hassle of establishing standards and creating dedicated channels. The underlying blockchain connects all stakeholders.
Earn
Blockchain is becoming known in the financial world thanks to new concepts like Decentralized Initial Coin Offering (ICO), Finance (Defi), and Security Token Offering (STO) (STO). It also gave birth to a new asset class, paving the way for a thriving trading ecosystem. Using AlphaWallet, you can trade your favorite tokens and interact with Defi in a wallet-native manner.
Disrupt
Blockchain enables new business models by eliminating intermediaries and mediators who add no value to the transaction. Blockchain will disrupt incumbents in various industries while creating a more decentralized world, from banking to royalty payments.Â
Special Considerations
An initial coin offering creates tokens, the cryptocurrency equivalent of an initial public offering (IPO). Cryptocurrency companies issue tokens to raise funds. Investors that are interested in the company can buy tokens.
Investors can use crypto tokens for a variety of purposes. For example, they can keep them in order to represent a stake in the cryptocurrency company or exchange or purchase goods and services or as a means of exchanging or purchasing goods and services. For example, Bluzelle, a decentralized storage provider, allows investors to stake native tokens that help secure its network and earn transaction fees and rewards.
Conclusion
As the blockchain industry matures, the number of unique digital assets will only increase to meet the diverse needs of all ecosystem participants, from enterprise partners to individual users. Given that making new investments in the digital world is less restrictive than in the physical realm, these digital assets have a wide use to improve the way countless industries operate, interact, and generate value, enabling many new social and economic opportunities.
