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What is Token?

The cryptocurrency world consists of many terms. But by far the word that gets confused the most is token. Are they the same as the crypto coins that we hear so much about? Or is it something completely different? In this article, you will find the answers to all these questions.

What is token?

Tokens are crypto assets that run on top of another cryptocurrency’s blockchain.

It means that those assets are not built on their own blockchain but the already existing one. For example:

Ether (ETH) is built on its own blockchain, Ethereum, which by definition makes it a coin.

Shiba Inu, on other hand, is also built on Ethereum. Yet it is not the blockchain’s native currency which makes it a token.

How do tokens work?

Tokens are created using various token standards. Those are simply a set of criteria that outlines rules and technical specifications tokens must follow to function optimally on the blockchain. Most often you will see such standards as ERC-20, BEP-20, ERC-777, etc.

The work of tokens is implemented through a software protocol most known as a smart contract. In short, that is a special code that outlines the features and functions of the token.

What types of tokens are there?

There are a lot of different types of token classifications but in general, there are two main ones you will see the most:

1

Classification by functionality

Utility tokens. This type of assets is usually related to a particular project and is used to access various services provided by it. For example, ApeCoin is a utility token holders of which get access to different games, events, and other services in the BAYC ecosystem.
Security tokens. This type represents financial assets that are similar to shares.
2

Classification by features

Fungible tokens. Those are assets that can be exchanged for other ones of equal value. For instance, you can swap one WBTC token with another WBTC token and still keep the same value — as two tokens would be worth the same.
Non-fungible tokens. These, on other hand, can not be exchanged. Here each of the two assets would be unique and therefore they will not be equal in value. You can not exchange one CryptoKitties NFT with another token — the data that contains inside of them is unique and not equal.

The crypto industry is continuously growing and each day introduces us to even more tokens. More usage ways are being produced and in the future, we will most definitely see even more implementations of this innovative technology.

Now you know what crypto tokens are! It is time to explore their wide variety and use them with full confidence!

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