- What is a token and why is it made?
- What is the difference between token and coin?
- What are the types of tokens?
What is a token?
There is still a question for many of us that do digital currencies solve any problems at all or are they created just so that some people can make a profit by buying and selling them?!
At the time of writing this article, Coinmarketcap.com has classified digital currencies into 145 different categories in terms of functionality. Health, music, tourism, sports, job search, marketing, entertainment and even gambling are just some of these categories.
When we talk about valid cryptocurrencies, each of them was created to solve a problem. For example, AAVE digital currency (AAVE) has tried to facilitate the provision of digital currency loans. With the help of “Avi” users can lend to other users and receive interest as a provider of liquidity. Naturally, they will receive this profit in the form of Avi tokens.
Another example is the “Theta” cryptocurrency. Theta Network is a site that uses people’s strong internet and broadcasts it on its own network so that those with weak internet can easily watch live broadcasts. In return, Theta Network gives Theta digital currency to people who give their internet to other people. Now they can spend the received theta however they like. As you can see, every cryptocurrency solves a problem with its token. For complete information, we suggest you read the digital currency training article.
When we refer to the dictionary for the meaning of the word token, we come across meanings such as sign, symbol, and password. Sometimes we use the word token instead of the word token (which itself is a French word!). For example, you need a canteen token (token) of the same university in order to get a canteen at the entrance of the university!
In the blockchain ecosystem, we are facing almost the same meaning for the token. A token in the blockchain ecosystem is any type of asset that can be exchanged and transferred digitally between people. In fact, the token creates a value that an organization has provided.
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Why are tokens made?
As we said, every token is created for a reason to solve a problem. But maybe your question is, why doesn’t every company create its own blockchain?
The answer is that creating a token usually doesn’t cost much. But building a blockchain is very specialized and expensive. Also, the blockchain that a start-up company starts will probably not have the security and efficiency of a blockchain like Ethereum. Therefore, many companies prefer to launch their token on the existing blockchain platform.
What is the difference between a token and a coin?
To understand what a token is, we have to point out how a token differs from a coin. In the shortest definition, the difference between a coin and a token is that coins have their own blockchain, but tokens do not have their own blockchain and run on another blockchain. In this way, you must guess yourself that the number of tokens is much more than coins. Because developing a coin takes much more time and money than a token. Perhaps the major differences between token and coin
Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ripple, Cardano, etc. are among the most famous coins. On the other hand, Tether, Solana, Polygan, Aave and Polkadat are among the most famous tokens.
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Types of tokens
Asset tokens, as their name suggests, represent the value of a physical asset. These types of tokens are known as Asset Tokens and are a document to prove an asset on their own platform.
Currency Tokens are used to transfer value. These tokens are just like Bitcoin or Ripple and can be used to transfer or store value.
Previously in the article “How to get free digital currency?” We have talked about airdrop. Reward Tokens have a mechanism almost similar to airdrop and are offered to its customers for their loyalty in using a platform.
Securities tokens are known as Equity tokens or Security Tokens. Such tokens are almost similar to securities on the stock exchange. That means, for example, the shares of a company or platform, and they can be bought and held like a share in order to make a profit from their price growth.
Some platforms share their income by distributing tokens among people. They do this with Dividend Tokens.
Utility tokens allow their holders to access a specific product or service.
How are tokens made?
Creating a token is actually not a difficult task. Of course, for programming that is somewhat professional. In order to know how the process of creating tokens is, you must first familiarize yourself with the concept of smart contracts. Smart contracts are codes that run on the blockchain and are designed for specific applications or services.
If we want to mention the difference between this type of contract and a normal contract, we should say that a normal contract is an agreement between two or more people that commits them to something in the future. Like a lease agreement for a commercial or residential unit. If there is a problem in the contract, there is a legal institution to resolve it. But smart contracts are completely different.
The smart contract is executed on the decentralized blockchain network, which consists of a large number of nodes and is not controlled by a central entity such as a bank or government or a centralized server. The largest smart contract blockchain so far is Ethereum, which currently hosts more than 80% of the tokens in the market.
Allegorical and non-allegorical tokens
Tokens can be divided into two categories: “like” and “unlike” tokens.
Fungible tokens are tokens whose one unit is no different from other units. A simple example is the same fiat currencies that we use. For example, a ten thousand toman bill can be exchanged for another ten thousand toman bill. You can even give a ten thousand toman bill and get two five thousand toman bills.
Beyond that, one fiat currency can be exchanged for another fiat currency. For example, he gave thirty thousand tomans and received one dollar. Similar tokens are exactly the same. For example, we can give Bitcoin and get Ethereum or cash in return. For this reason, these tokens are called like or exchangeable.
In contrast to fungible tokens, they are called Non-Fungible Tokens. These tokens are called NFT for short. You can think of non-symbolic tokens like a painting. Each painting, no matter how carefully it is drawn like another painting, is still different from the other. You can’t split it or do anything like that. The same goes for non-homogeneous tokens.
Each NFT token is unique and has its own set of properties and characteristics. It is this uniqueness that may make such tokens command such a high price. Just like the works of art that we see in galleries and our eyes go round due to their price. For example, CryptoPunk token #4156, which we recently reviewed in Crypto Weekly, sold for $10.35 million.
With these examples, we can probably now better understand what a Non-Featured Token or NFT is. In the world of digital currencies, NFT is a digital asset whose main feature is uniqueness. This asset is stored and transferred on the blockchain. If you want an example, we can point to items used in computer games, collectibles, digital artworks, or virtual concert tickets.
Its famous example, which has become very popular these days, is the Metaverse Dicentraland game, where you can collect and trade collectibles, clothes, and other items.
A token is a digital currency that does not have its own blockchain. The difference between the token and the coin is related to this and several other technical issues. Tokens are divided into six categories: asset tokens, currency tokens, rewards, securities, interest tokens, and utility tokens. Also, in another definition, tokens are divided into equivalent or exchangeable and non-exchangeable or non-exchangeable.