What is a Crypto Token?

In the cryptocurrency world, the words "coins" and "tokens" are sometimes used interchangeably, however they refer to different things. They are easily confused as both fall under the umbrella term of cryptocurrency. To put it simply, cryptocurrency is a digital asset based on blockchain technology and both tokens and coins fall under this category.

While crypto coins and tokens appear to be the same to the average user, there are technical distinctions in how they are constructed. Knowing the distinction can allow cryptocurrency users to draw more educated conclusions.

What is a Crypto Token?

A crypto token is a specific token of virtual currency. These tokens represent tradable assets that runs on an existing blockchain. These currencies are often issued, sold, and put into circulation through the ICO process, which includes a crowdfunding exercise to fund project development. Blockchains are databases that record data in blocks chained together.

Tokens are created through an ICO, which is the crypto equivalent of an IPO. Tokens are created by companies looking to raise capital and investors interested in the company can buy them. Crypto tokens can be used by investors for a variety of reasons. For example, they can keep them as a representation of a share in the cryptocurrency company or to exchange or purchase products or services.

Common Uses

Crypto tokens can be used for a variety of purposes other than currency. Here are some of the more common uses for crypto tokens:

• Governance Tokens - These are specialized DeFi tokens that provide holders with a say in the future of a protocol or application that has no central authority due to its decentralized nature.
• Platform Tokens - These tokens are used to support a decentralized blockchain-based application (dApp). Because of the blockchain they run on, platform tokens gain enhanced security and the ability to facilitate transactional activities.
• Transactional Tokens - They provide a quick and easy method to send funds. In most cases, they serve the same purpose as traditional currencies. However, they can often provide additional benefits. These coins typically have lower transaction fees than banking institutions, allowing people to make numerous transactions.
• Non-Fungible Tokens (NFTs) - A non-fungible token (NFT) is a type of crypto token that represents ownership of a digital or physical asset, and can be used to determine who owns the asset.
• Security Tokens - Security tokens are the cryptocurrency counterpart to traditional securities such as stocks or bonds. Their primary use is to sell shares in a company without the need for a broker. Security tokens are being studied as a viable alternative to traditional means of financing by large companies and startups.
• Equity Tokens - Equity tokens are a subset of security tokens. They function similar to traditional stock assets, granting ownership to token holders. Holders are also entitled to a share of the company's profits and a vote on significant decisions. An Equity Token Offering (ETO) is the procedure by which Equity Tokens are issued.
• DeFi tokens - Recently, a new world of cryptocurrency-based protocols has evolved that seek to replicate the classic operations of the financial system (loans, insurance, savings, trading). These protocols create tokens that can be traded in the same way as any other cryptocurrency.
• Utility Tokens - Users can use these tokens to gain access to a blockchain-based service or product. They can be used to pay for services provided by the system. CRU and UNTB are examples of utility tokens. Individuals can use them for commercial purposes. Utility tokens and platforms have a mutually beneficial relationship. A platform provides security for a utility token, while the token offers the network activity required to support the platform economy.

Crypto Token vs Crypto Coin

Understanding the distinction between a coin and a token is crucial for any cryptocurrency lover looking to delve into the world of cryptocurrencies. To determine whether you are dealing with a coin or a token, look at whether the cryptocurrency has a blockchain. It is a coin if it has its own blockchain and a token if it runs on an existing blockchain.

A blockchain can only have one native asset, which is the crypto coin. There may be several cryptocurrency tokens operating on the blockchain. Let's use the Ethereum blockchain as an example. While Ether is the native currency of the network, multiple tokens operate on the same blockchain.

Since tokens are easier to create than coins, the amount of scams and bad projects associated with them is greater. However, this does not imply that coins are a better investment alternative. After all, a cryptocurrency token can have more fascinating applications than a coin.

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