Every time we investigate cryptocurrencies in any Internet search engine, it is unsurprising that the word token is one of the most used in cryptographic jargon, which is why we will explain it quickly and easily in this article that refers to so used term.
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Tokens are part of the Blockchain.
Tokens are nothing more than the physical representation of some object that has value in a particular environment, in this case, the digital world.
In other words, tokens represent any cryptoactive registered on the blockchain platform, providing those who own them with the security, peace of mind, and ease of operating with them on various digital market platforms.
The tokens are created based on programming codes in Smart Contracts such as those of Ethereum on the Blockchain platform.
These smart contracts make it possible to analyze each token and keep track of the units each user owns. In turn, they carry out exchange operations between them, where each token has a different value depending on the cryptoactive it represents.
Are tokens cryptocurrencies?
Since Satoshi Nakamoto created Bitcoin, many ingenious technicians began to study and analyze this new digital economy platform opening up to the world as a new market where investing would always be profitable.
From there, new currencies and digital tools emerged, such as the smart contracts of the brilliant Russian programmer Vitalik Buterin, who, after analyzing various proposals, created Ethereum, Bitcoin’s biggest competitor.
In a few words, all cryptocurrencies are tokens; therefore, these are the physical or graphical representations of the value of said virtual currencies and digital assets. However, the token is not a cryptocurrency because it has no value.
The tokens are created based on the cryptographic schemes that exist under the blockchain platform, which is why the easiest way to identify a token is by its initials or its physical representation, such as: (BTC) is the graphic representation of Bitcoin token, ( ETH ) the Ethereum token, as well as (DOGE) is the Dogecoin.
How are tokens used in the digital economy?
Like in the traditional market, we use fiat currencies to purchase goods or services. But on the other hand, the tokens represent the bills or coins in the digital world, serving as a means of exchange in the different operations or transactions carried out by the Blockchain platform.
The digital market performs a large number of operations, and that is where the use of the famous tokens is based; Some of its services may be such as:
- Currencies: These are the tokens used to carry out transactions of value 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 are generated when we acquire digital help, such as an NFT.
- Actions: They represent the portions of the activities of a user in a particular company to carry out future commercial operations.
- Rewards: They arise in the case of companies that, to carry out a specific activity or process, instead of paying in any legal tender, 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 purchase various services offered by the blockchain platform and strengthen the digital economy of this famous ecosystem, contributing to the financial management of multiple projects. Investors like those.
Security Tokens: These are all those tokens that have a specific value due to previous investments and to which users have rights; they can even be exchanged or reused in short or long-term investments.
They are generally used to operate on the different platforms the cryptographic world offers.
Just as cryptocurrencies exist, tokens are in charge of 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 several users, which gives confidence and credibility in their use.
In addition to being used as a means of payment, tokens can represent all kinds of fungible goods that can be sold.
Before starting to be part of this digital market, knowing all the terms used to invest firmly and safely is essential.
Feature Photo by Shubham Dhage on Unsplash
DISCLAIMER: This article is sponsored and does not substitute for professional advice or help. Any action you take upon the information presented in this article is strictly at your own risk and responsibility.