What is token?

For Beginners

What is token?

Tokens (also called “crypto tokens”) are a very broad term used for different cryptocurrencies. There are so many uses that it’s becoming increasingly meaningless to call something a “token”, especially because a lot of people use this word without really delving into distinctions. That’s not bad, but it does make the word less substantial.

There are several crypto token standards, most of which are based on the Ethereum blockchain. The most commonly used criteria for tokens are ERC-20, which allows the creation of tokens that can interact with the Ethereum decentralized application ecosystem, and ERC-721, which was designed for non-fungible tokens (NFTs), which are unique and cannot be replaced by other similar tokens.

Different Meanings of Token

There are several widespread uses for this word:

  • “Token” is often used as another word for “altcoin”. Basically, it refers to any other cryptocurrency besides Bitcoin and Ethereum, which comprise well over 50% of the overall market cap of the crypto world.
  • It can also mean governance and utility tokens. These tokens are all about practical application. They are essentially used to allow investors to participate in the inner workings of a particular crypto project or use them to access some features. Outside the boundaries of a given crypto project, they are often worthless.
  • Tokens are what people usually call the coins distributed during the ICO (Initial Coin Offering) during the early stages of crypto project development. It’s essentially fundraising.
  • Coins used to represent various assets – fiat currencies, commodities, other crypto – are commonly called tokens. USDT is a prominent token, as are NFTs.

The main recurring motive here is that tokens serve a specific purpose, are limited in functionality, and have some secondary role. It stands in contrast to the word ‘coin’, which is essentially any cryptocurrency regardless of its purpose, origins, or structure. If a coin has some specific application or limits, it can be called a token.

Are Tokens Important?

Tokens don’t just serve a valuable role in the crypto world. A sizeable portion of the decentralized web is tokens. Even if you don’t take this word at its broadest meaning, which is just everything besides the two biggest cryptocurrencies, there are still lots of cryptocurrencies that keep the network running.

It’s thanks to tokens and their utility that new projects are created, dApps can function, and decentralized finance can operate. Due to the way, blockchain is designed, you have to have a dedicated sort of digital currency meant specifically as a fuel for that blockchain. Tokens are that fuel.

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