Every time we enter to investigate cryptocurrencies in any Internet search engine, it is not surprising that the word token is one of the most used in cryptographic jargon, which is why we will explain it quickly and simply in this article which refers to so used term, Click here
Tokens are part of the Blockchain.
Tokens are nothing more than the physical representation, in this case in the digital world, of some object that has value in a particular environment.
In other words, the tokens represent any crypto-asset registered on the blockchain platform, giving those who own them the security, tranquility, and ease of operating with them on the various platforms of the digital market.
The tokens are created based on programming codes in Smart Contracts like those of Ethereum on the Blockchain platform.
These smart contracts allow each token to be analyzed and keep track of the units owned by each user and, in turn, carry out exchange operations between them, where each token has a different value according to the crypto asset it represents.
Are Tokens Cryptocurrencies?
From the moment Bitcoin was created by Satoshi Nakamoto, many ingenious techies began to study and analyze this new digital economy platform that was opening up to the world as a new market where investing would always be profitable.
From there, new digital currencies and tools began to emerge, such as smart contracts by the brilliant Russian programmer VitalikButerin, who, after analyzing various proposals, created Ethereum, the biggest competitor of Bitcoin.
In a few words, we can say that all cryptocurrencies are tokens; therefore, these are the physical or graphic representations of the value of said virtual currencies and digital assets, while the token is not a cryptocurrency because it does not have any value by itself.
The tokens are created based on the crypto schemes that exist under the blockchain platform, which is why the simplest way to identify a token is by its acronym or its physical representation, such as: (BTC) is the representation graph or token of Bitcoin, (ETH) the token of Ethereum, as well as (DOGE) is that of Dogecoin.
How are tokens used in the digital economy?
Just as in the traditional market, we use fiduciary currencies to acquire goods or services. The tokens represent the bills or coins in the digital world, serving as a means of exchange in the various operations or transactions that carry out the platform Blockchain.
The digital market carries out a large number of operations, and that is where the use of the famous tokens is based; some of their uses can be such as:
- Currencies: These are the tokens used to carry out value transactions between the beneficiaries of a network. That is when they must transfer balances or make payments to third parties in the blockchain environment.
- Assets: These generate when we acquire any digital asset such as an NFT.
- Actions: They represent the portions of a user’s actions in a particular company, intending to carry out future trading operations.
- Rewards: These arise in the case of companies that, to carry out some specific activity or processes, instead of paying in any legal currency, prefer to do so in the form of tokens.
The most common and straightforward classification that we can find so as not to get confused in this digital market and all its terminologies is the following:
Utility Tokens: These are the types of tokens that allow their users or owners to acquire various services offered by the blockchain platform and strengthen the digital economy of this famous ecosystem, contributing to the financing management of the multiple projects. Those are to the liking of investors.
Security Tokens: These are all those tokens that have a specific value due to previous investments and on which users have rights inclusive can be exchanged or even reused in short or long-term investments.
They do generally use for trading on the different platforms offered by the cryptographic world.
Just as cryptocurrencies exist, tokens are responsible for physically representing in some way the investment or capital that users of the blockchain platform have; they are the unit of value most accepted by a community of number users, which gives trust and credibility in its use.
In addition to being used as a means of payment, the tokens can represent all kinds of fungible assets that can sell.
Before beginning to be part of this digital market, it is crucial to learn about all the terms used to invest firmly and safely.