Crypto Token Explained – A Beginner’s Guide

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Crypto Token Explained

In the crypto world, we regularly hear some basic words like crypto coins, tokens, altcoins, NFTs, crypto wallets, etc. 

Crypto tokens are quite similar to crypto coins, but both have different features. Which you will read in this article. 

Crypto token helps to save your money, but how?

As we know cryptocurrencies or blockchains are new technologies and there is not enough information available yet. New updates, features, and technologies keep coming from time to time.

If you keep learning about this future-based technology continuously then this technique will help you to earn money in the future.

So, don’t miss out on learning about crypto tokens as it can save you money.

What is a crypto Token?

A crypto token is a type of digital asset that uses someone else’s cryptocurrency blockchain network. This blockchain network provides an infrastructure to run or create tokens. Crypto tokens can represent different things in the crypto world such as value, stake, voting rights, or others. 

In real life, the token is a thing that serves as a visible or tangible of a fact, quality, feeling, etc.

For Example, a token can represent a membership of a gym, or taken can be a movie ticket, or taken can be a driving license of a car that represents you know driving.

Example: The best example of a crypto token is Ethereum. Ethereum network has its own cryptocurrency blockchain network that validates transactions and stores data. 

Here, the Ethereum token (ERC20) uses the Ethereum blockchain network’s infrastructure and capabilities. 

Recommend: A complete guide on the crypto wallet for beginners. 

Difference Between Crypto Coin & Tokens

difference between crypto coin and token

You know both (coin and token) are based on blockchain and can be used for the same purposes. But what are the major difference between coin and crypto tokens? 

Let’s understand by this table:

Crypto Coins Crypto Tokens
1. Crypto coins are used their own blockchain network for transferring and validating cryptocurrencies.

2. We can use coins for trading and transferring money. 

3. Ex. Ether is a cryptocurrency coin that runs on the Ethereum blockchain network. 

1. Crypto tokens are built exiting blockchain network and use its infrastructure for doing something.

2. The token can be used for different purposes like stake, value, vote, money, or exchange.

3. Ex. ERC-20 tokens that built on Ethereum Blockchain Network and use it as a programmable blockchain. 

 

Types of Crypto Tokens

Type Of Crypto Token

There are many types of crypto tokens available and each one has different use cases. 

Let’s see some most crypto token types

1. Platform Crypto Token:

Platform Token uses the existing blockchain infrastructure to build various decentralized applications or dapps. 

For Example, Uniswap is a decentralized application that allows user to swap their Ethereum token in other Ethereum tokens.

In addition, they have a decentralized app and own Uniswap token. This token is awarded to investors who invest in the Uniswap platform

In return, the platform promises its token holders that they can vote on future changes and make some profit from trades.

The advantage of platform tokens is that they can support transaction activity and achieve increased security.

Platform tokens have a variety of uses, from gaming and digital collectibles (CryptoKitties!) platforms to the global advertising and marketplace industries

2. Security Crypto Token

The security token came into the market when Regulatory authorities wants to regulate cryptocurrencies.  The working of this token is the same as traditional securities. security tokens are minted to represent ownership of another asset. Also called equity tokens. 

The price of security tokens also fluctuates with the price of shares or gold.

For Example: 

  1. When you buy a company’s stock or share, you get a paper that represents ownership of the shares. 
  2. You want to buy gold but don’t want to keep it. One can create a security token that tracks the price of gold. And you can buy or sell tokens at the price of gold. It is like paper gold.

This token or paper represents you as a gold owner that is technically more secure. Because hacking the Ethereum network is almost impossible.

3. Utility Crypto Token

Utility tokens are a type of crypto token that has a value tied to their ownership. These tokens are integrated into an existing blockchain’s protocol. These tokens are created for specific purposes.

We cant use it for investment purposes but we can use them for payment of services within their platform.

They can be used for commercial intent. This token provides you an ecosystem to pay for a product or service. 

For Example

  1. A basic attention token is an Ethereum based token that can be used to advertise on brave browsers. 
  2. On the medipedia platform, you need to use MEP tokens for the payment of healthcare services. 

4. Transitional Crypto Token

Transactional tokens are used for transactions. These work just like a traditional currency and we can use them in the exchange of goods or services. But in some cases, it is more beneficial than traditional currency. 

This is an easy and fast way to transfer money from one country to another.

These tokens allow trading for other fiat currencies and cryptocurrencies. You can transfer this coin with the help of crypto wallets. 

For Example,

The best example of it is bitcoin and dai token. These allow users to transfer money without a traditional intermediary. 

When you go into a store to buy a shirt or pants, you can use xdie coin as money for buying anything. The transaction fees for this coin are very low than Paypal. 

Dai also offers transactional performance to other networks.

5. Governance Crypto Token

As we know that blockchains are based on distributed consensus mechanism. A governance token allows its user to vote, collaborate, and debate on certain things.

For Example, The uni swap token could be a governance token. Token holders could choose to vote to raise the fee of a uni swap trade from 02% to 0.4%.

Everyone with the token would be allowed to vote on this change. The most vote chooses as a winner. 

So, we can say you have more voting power if you have more tokens.

The working of Crypto Tokens

As we noted above crypto tokens are digital assets that have value. They can be traded, bought, transferred, or sold, as well as stored in crypto wallets. 

There are various crypto tokens available and each is designed for a different purpose. Here are some of the most common uses of crypto tokens

  • Governance tokens give the right to its token holders that they vote on a proposal. They determine this proposal on the basis of the vote. 
  • Decentralized Finance (Defi) is a blockchain-based financial system. In case of anybody want a loan from a lender then you get Defi tokens. You know the Defi platform has its own token.
  • Non-fungible tokens are used for denotes ownership of digital assets. The donating information is stored in the cryptocurrency token as a form of images or GIF.
  • Uniswap token is built on the Ethereum blockchain that allows users to swap out Ethereum tokens.

Top Crypto Token That You need to know

There are variety of crypto tokens available that you can get. But Here I wrote some top crypto tokens for understanding.

  • Tether (CRYPTO: USDT) and USD Coin (CRYPTO: USDC) are the best examples of stable coins. They are specially designed on the Ethereum blockchain that maintains a price of $1.
  • Shiba INU (Crypto: SHIB) is a controversial meme token. Because the price of this coin had skyrocketed in a few days. After a few days, the price dropped by more than 50%. The price of this token is the main reason for its popularity. 
  • Chainlink (CRYPTO: LINK) is an oracle network token built on the Ethereum blockchain network. This is designed to receive real-world data on the blockchain. 
  • Uniswap (CRYPTO: UNI) is a decentralized crypto exchange of the same name. This token uses the Ethereum blockchain to build its platform. With this token, you can do cryptocurrency trading with no central governing authority.

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