In recent years, many people entered the digital currency market with the aim of making a profit.
Although this volatile market is associated with many profits, some also suffer financial losses. One of the most important reasons for not being successful in this market is not having enough knowledge in this field.
The cryptocurrency market, like other markets, has its own terminology. Unfortunately, there are many people who are not very familiar with these terms and do not know their usage properly.
One of the terms in the world of digital currencies is Token, which is sometimes mistakenly used instead of Coin or referring to some types of digital currency.
In this article, we will answer the question of what a token is and discuss its uses. let’s discover together:
- Understanding the token and its initial release
- The purpose of token creation
- Token uses
- Tokens, digital currencies and altcoins
- “similar” and “non-similar” tokens
- Types of tokens
- Token making method
- The difference between token and coin
- Token storage and maintenance
- Top tokens on the market
- Buying and selling tokens
Understanding the token and its initial release
Token is one of the terms is digital currency, which refers to a unique cryptocurrency or digital currencies.
Tokens are fungible assets or instruments that do not have their own blockchain. Tokens are usually created through a standard Initial Coin Offering (ICO) process and can be used for investment, store of value or purchase purposes.
The purpose of token creation
One of the most important reasons for making this currency by projects is to reduce costs. Because the creation of Token in the platform of digital currencies does not require spending a lot of money.
On the other hand, by using the initial supply, the capital needed for the company’s activity can be collected.
Another reason why companies create tokens instead of building their own blockchain is that it is easy to build. Companies can create their own token by employing people who have programming knowledge and are relatively familiar with smart contracts.
On the other hand, working on the platform of secure and large digital currencies such as Ethereum provides the necessary security for many companies. Because as the number of users of a blockchain network increases, its security also increases.
Token uses
Tokens have different uses based on their characteristics and functions. The most important use of Token is fundraising and ICO.
Tokens can be used in various ways, such as ownership of digital assets, accounting for digital actions, ensuring network security, etc.
Tokens, digital currencies and altcoins
The term token is often mistakenly used instead of the two words cryptocurrency and altcoin. But these terms are different from each other.
Altcoins are alternative cryptocurrencies that were launched after the massive success that Bitcoin achieved. Altcoins were launched as advanced alternatives to Bitcoin that claim to be superior to Bitcoin in some cases and cover its weaknesses.
Litecoin (LTC), Bitcoin Cash (BCH) and Dogecoin (DOGE) are common examples of altcoins.
Although each of these altcoins has been able to achieve some success, none of them have been able to gain popularity similar to Bitcoin.
Unlike tokens, altcoins have their own blockchain and are primarily used as a platform for digital payments.
“similar” and “non-similar” tokens
Tokens can generally be divided into two categories: “similar” and “non-similar” tokens. Similar tokens are called “Fungibile” tokens and non-similar tokens are called “None-Fungible Tokens”.
Interchangeability is one of the characteristics of tokens, which simply means that a certain unit of that type of Token is no different from another unit of it.
Simply put, a dollar is always a dollar and a bitcoin is always a bitcoin. You can trade $10 bills with another person and each of you will still have the same value in your wallet.
Fungibility means that a particular cryptocurrency and asset is not more valuable or scarce than others. If this is the case, it will disrupt the entire ecosystem and cause major problems for daily transactions.
Peer Tokens can be used for buying, selling and transactions where Peer Token units are needed.
On the other hand, non-similar tokens are used in cases where each unit of token needs to be unique, such as new blockchain games and digital artworks.
Types of tokens
Tokens are divided into several different categories according to their type. There are different categories for tokens, but in general, tokens can be divided into the following four categories:
Utility tokens
Utility tokens are a popular type of exchangeable tokens that are issued in limited quantities and can be used to pay for expenses, purchase goods, and receive services in one or more specific projects.
The most famous example is the Ether Utility Token, which powers all transactions and smart contracts on the Ethereum network.
As we said before, Ethereum can be used as a means of payment, however, its main purpose is to be used in the blockchain.
Social Tokens
Social tokens are a very interesting type of asset that has gained a lot of popularity in the crypto space recently. They have also made people more familiar with the Token concept.
Social tokens are backed by the credibility of an individual, brand, sports club or any community. They can be used as Fan Tokens to purchase additional content, merchandise, or just to support your favorite community.
When a user invests in social coins, they are actually investing in a community, with the expectation that this community will grow and become more valuable over time.
Security tokens
In contrast to raising money with utility tokens, other ICOs have decided to publicly announce fundraising campaigns and follow regulations.
This is how security tokens were born. It is essentially a digital stock certificate that records the owner’s ownership on the blockchain.
Governance token
A governance token is a type of cryptographic asset that grants its holders the right to make decisions about a project’s protocol, product, and features.
Holders can influence decisions within the project, such as proposing or deciding on new features, changing token distribution models, and even restructuring the governance system itself.
Payment token
The purpose of creating this type is to pay for services and goods. Holders of these currencies can use the payment token to buy the desired products on the Internet or pay the necessary fees to receive certain services.
The point that you should pay special attention to is not to fall into the trap of Shitcoin when choosing tokens.
Token making method
To create a token, first of all, the use and type of the token must be determined. Then the right blockchain to build it should be identified.
The blockchains that are chosen to build Tokens are different from each other. These differences are due to the programming language, Token construction standards, and how the Token interacts with the network.
Most of the old tokens were created on the Ethereum blockchain. But in the last year, with the emergence of new blockchains, they are used to create tokens. Some popular meme coins were also born on Ethereum platform.
The difference between token and coin
Some people use the terms Token and Coin interchangeably, even though they have important differences.
The most important and main difference between a token and a coin is that coins have their own blockchain, but tokens do not have an independent blockchain and can be implemented on other blockchains.
Other differences between Token and Coin can be mentioned in their applications. Coins are mostly used for buying and selling, but tokens are used as currency for certain ecosystems.
Token storage and maintenance
You need a digital currency wallet to store and maintain tokens. Tokens do not have their own wallet and are stored on their host’s wallet and blockchain addresses.
For example, a token like Chainlink created on the Ethereum blockchain can be stored on all wallets that support Ethereum. In some new platforms, it is possible to store tokens on dedicated wallets. Like Polkadat
Top tokens on the market
Many tokens have been introduced to the market in recent years. But all of them have not been able to reach their goals and have been included in the list of failed projects.
Of course, in contrast to a number of tokens, such as stable coins such as Tether, USD Coin, Binance USD, and Polygon, they have managed to gain a good position in the highly competitive market of digital currencies.
Buying and selling tokens
The first way to get Tokens is to go to digital currency exchanges. You can trade different Tokens, manage your wallet and see the current price of digital currencies in the your digital currency exchange.