What Is a Crypto Token? Definition and Guide
Today, almost everyone has some knowledge or opinion about cryptocurrencies. Bitcoin (BTC), Ethereum (ETH), Dogecoin (Doge), decentralized finance (DeFi), blockchain technology, NFTs, Fan tokens and many more... Some have been aware of this market since its emergence in 2008, others since the big surge in 2017, and many since 2020, declared as the pandemic year.
It all started in 2008 when the Bitcoin whitepaper was published online by a person or group known as Satoshi Nakamoto, whose identity remains unknown. In 2009, the Bitcoin blockchain and cryptocurrency became operational. The crypto world, which started with Bitcoin, grew exponentially with many coins and tokens that followed.
Cryptocurrency, coin, token, digital currency, altcoin are frequently used terms in this ecosystem. Many of you might think they all mean the same thing and call everything in this ecosystem either a coin or token. Actually, both coins and tokens are cryptocurrencies. However, these are two different types of cryptocurrencies.
In this article, we'll answer the question "What is a Token?"
What is a token in the cryptocurrency world?
Tokens are cryptocurrencies that are not built on independent blockchains but are created by integrating with existing blockchains. Tokens have unit values and can be traded based on these values. Tokens can represent not just a value, but also a product or service. Creating tokens is relatively easier than creating coins since they are built on existing blockchains.
Considering the suitability of smart contract structure, most tokens today are built on the Ethereum blockchain.
What are the most well-known tokens?
USD-pegged Tether(USDT) is one of the most well-known tokens with the highest market value. Tether is a stablecoin and exists on both Ethereum and Bitcoin blockchains.
There are many different types of tokens. NFTs, DeFi tokens, fan tokens, metaverse tokens can be counted among these. Tokens in these categories include Decentraland (MANA), The Sandbox (SAND), Compound (COMP), Chainlink (LINK) among the most well-known tokens.
What are the types of tokens?
We can divide tokens into four groups based on their functions.
- Credit token: Acts as a bridge between investors and entrepreneurs. In this type of token produced for lending purposes, entrepreneurs can borrow from investors.
- Utility token: These are tokens produced for service purposes rather than investment purposes.
- Equity token: Covers the term ICO (Initial Coin Offering). The logic in these tokens is similar to IPOs in stocks. These projects are offered to the public during their initial establishment and launch phase. Since investors support the project in its early stages, they may gain certain privileges in later stages.
- Governance token: Gives holders voting rights in the governance of a particular service or project.
What is a Coin?
Crypto assets that have their own independent blockchains are called coins. In other words, before creating a coin, you must create its blockchain, which is quite difficult and expensive.
Essentially, we can say coins are smart contracts created on blockchains.
Smart contracts are software that can automatically execute transactions and agreements between parties in a reliable and consistent manner.
What are the most well-known coins?
Bitcoin (BTC), the first crypto asset, and Ethereum (ETH), the second-highest market cap cryptocurrency, are the most well-known coins. Along with these, there are many well-known coins like Dogecoin (Doge), Polkadot (DOT), Avalanche (AVAX), Solana(SOL), Litecoin (LTC).
What are the differences between Tokens and Coins?
You probably understand the differences between these two concepts by now. But it's worth summarizing. A coin is a crypto asset created on its own blockchain using cryptology science.
A token, on the other hand, is a crypto asset built on an already existing blockchain.
Since there's no need to create a blockchain, token production is much easier compared to coin production. Also, while a coin is a digital currency, a token is a digital asset. While you can buy cryptocurrency with coins, you can buy a service or product with tokens.
Where can you buy Tokens?
You can buy tokens through domestic and foreign cryptocurrency exchanges. In Turkey, you can easily buy and sell tokens through the Bitlo cryptocurrency exchange.