Cryptocurrency is being seen as an alternative to the conventional money we use right now. After becoming a trend, more and more people are joining this community and investing their money. However, beginners can find it a bit overwhelming as there are terms related to cryptocurrencies that sound similar but have different meanings. With no real definitions, it can leave a sense of ambiguity in the person.
One such term is crypto tokens; they are often confused with coins but, in reality, have a totally different meaning to them. If you are interested in getting into the world of crypto and understanding the meaning of crypto tokens, then you are at the right place. Here’s everything that you need to know about crypto tokens.
What are crypto tokens?
“Token” is a word you’ll hear fairly regularly if you are part of the community. Some people also define Bitcoin as a crypto token. Well, technically, every crypto asset can be defined as a token. The word has adopted two meanings, and we are defining both of those to you:
- Any cryptocurrency except Bitcoin and Ethereum
Many people define every other cryptocurrency besides Bitcoin and Ethereum as a token. If you look at them technically, both of them are tokens as well. However, looking at the scale of these two cryptocurrencies, it’s useful to have a word to describe the universe of other coins.
- Crypto assets that run with the help of another currency’s blockchain
Another very common definition is people seeing a token as a crypto asset that runs on top of another cryptocurrency’s blockchain. For example, while famous cryptocurrencies like Bitcoin have their own blockchain, other tokens like DeFi or decentralized finance and tokens like Chainlink and Aave run on top of an existing blockchain. Most commonly, that blockchain is Ethereum.
Different types of tokens
As already mentioned, you will come across the term a lot. Hence, it’s important to know the difference between different tokens. Here are the different types of tokens:
These tokens were released to reproduce the traditional financial system functions. You are able to perform lending, saving, insurance, and even trading with these tokens. These tokens are similar to cryptocurrencies in the sense that they can be traded or held for as much as you like.
They are a special type of DeFi token that gives you a special authority to have a say in any future decisions of a protocol. Most of these protocols don’t have any board of directors or any other type of central authority.
Non- fungible Tokens(NFTs)
NFTs represent the ownership rights that one has to a specific unique digital or real-world asset. They make the reproduction of digital assets more difficult, so their integrity and originality remain the same. They are very famous in the crypto market. Many people like to sell their digital artworks or sell unique assets like a rare item in a game.
Another type of token is security tokens which aim to be like the traditional securities like stocks but for the crypto market. Now that you know what tokens are, you must be itching to search for tokens on the internet. If that is the case, then you might want to take a look at Dog Show, the crypto-token everyone is investing in.