Tokens – what is it in cryptocurrencies?
What is a Token?
The term "token" refers to a unit of account and a record in a specific registry that represents the balance of a particular project. Tokens are built on an existing blockchain. For example, cryptocurrencies like Ethereum and NEO provide developers with the ability to create new tokens on their respective platforms.
Creating a token requires programming skills and other knowledge. A token is always tied to a specific project, whereas a cryptocurrency is either the main project itself or the foundation for creating tokens.
How Does a Token Differ from a Cryptocurrency?
The main differences between a token and a cryptocurrency can be summarized as follows:
- A token does not have its own blockchain; it is based on an existing platform (such as Ethereum, NEO, etc.).
- The issuance of a cryptocurrency occurs slowly, while tokens are typically issued all at once and in full.
- Tokens have a broader range of applications.
- A cryptocurrency has a more extensive scope, whereas a token is a smaller part of it and is used within a specific project.
- A cryptocurrency is always decentralized, whereas a token can have a single creator and be part of a centralized project.
Main Similarities
Despite their differences, cryptocurrencies and tokens share several similarities:
- Both cryptocurrencies and tokens exist only in the virtual world.
- They can be used as a means of payment.
- They are acquired through exchanges, brokers, or directly from individuals.
Practical Use of Tokens
Tokens can be used for the following purposes:
- Rewarding users of a specific application.
- Compensating investors for their assistance in a project.
- Being used as an internal currency within a specific project.
- Enabling lending through credit tokens, allowing borrowers to obtain funds.
- Creating tokens for fans, such as unique tokens for football clubs and other organizations.
It is worth noting that these terms have become somewhat blurred on the internet. However, distinguishing between tokens and cryptocurrencies is important, as it allows for a more thorough understanding of a project and helps to mitigate investment risks.