TL;DR
- Crypto tokens are digital assets created on top of existing blockchain.
- Crypto tokens work thanks to blockchain and smart contracts.
- There are 4 main types of crypto tokens, including utility tokens, security tokens, commodity tokens, and non-fungible tokens (NFTs).
- Crypto token is a new way of verifying ownership and creating transparency for everyone in the sector
Introduction
The cryptocurrency industry has come a long way since it was first introduced, now there are many different types of options to choose from such as cryptocurrencies, altcoins, and crypto tokens. The large variety of terms can cause a lot of confusion for investors, especially beginners.
In this article, we will go into detail about crypto tokens, how it works and what differentiates them from the others.
What is a token?
Tokens, or crypto tokens, refer to digital assets created by organizations on top of existing blockchain networks to fulfill a particular purpose.
More simply speaking, every cryptocurrency is built on its blockchain. If a cryptocurrency uses another cryptocurrency’s blockchain system, it is a token.
What are the differences between tokens, cryptocurrencies?
Here is the comparison between token and cryptocurrency based on definition, logic, use cases and some examples.
| Criteria | Cryptocurrency | Token |
| Definition | A cryptocurrency is a digital currency that is secured and verified by cryptography. | A token is a unit of value created by an organization for a particular purpose and supported on an existing blockchain.Tokens are merely a subset of cryptocurrencies. |
| Logic | Built-in logic in protocol of a blockchain | Programmable logic in smart contract deployed to a blockchain |
| Use Cases | Digital transactionsOnline paymentStore of valueInternet of ThingsSmart contracts,… | CrowdfundingCollectiblesAsset TokenizationDigital currency,… |
| Examples | BTCETH | DAICOMPLINK |
4 types of token you need to know
Utility Token
The utility token is a type of token issued to fund the development of the cryptocurrency. It is distributed to investors during the initial coin offering (ICO) phase to generate interest in the product.
Users who own a utility token can carry out specific actions on a particular blockchain network or decentralized application.
Many crypto projects have utilized utility tokens to raise funds or encourage transactions on their platforms. Arweave (AR), Binance Coin (BNB), and Chainlink (LINK) are some of the most famous utility tokens in the market.
Security Token
Security tokens can be considered the digital form of traditional securities. Owners of security tokens also have the same benefits as stocks, such as earning profits through dividends in the form of additional tokens and other perks like voting power.
Props, Venue, and Curzio Equity Owners some companies that create security tokens.
Commodity Token
Commodity tokens are tokens backed by commodities such as gold or currency.
An excellent example of a commodity token is a stablecoin, which is backed by physical assets, precious metals such as gold, silver, copper, or fiat currency like the US dollar.
For example, Paxos Gold (PAXG) is pegged to the price of gold in the London Good Delivery market, or Tether is pegged to the price of USD.
Non-fungible Token
Non-fungible Token (NFT) is the rising star in the crypto sector. Some NFTs are even worth millions of dollars.
NFTs are unique cryptographic tokens that exist on a blockchain network and cannot be copied. Every NFT has a digital signature that distinguishes it from the others.
How do tokens work?
To understand how tokens work, you need some general knowledge about blockchain.
Blockchain is a digital database distributed among a computer network’s nodes. It facilitates the process of recording transactions and tracking assets.
The regulations for each token are laid out in a smart contract, which is a program kept on the appropriate blockchain. Additionally, this blockchain records any transactions made using this token.
Top 3 most profitable tokens to invest in 2023
FightOut (FGHT)
The most profitable coin to purchase right now during a presale is FightOut. FightOut is a move to earn crypto project, which rewards users that maintain a healthy lifestyle with the native token FGHT.
The presale is the ideal opportunity to purchase FGHT. With a 10 billion token supply, the currency is now available for purchase for $0.0166 per token.
Dash 2 Trade (D2T)
Dash 2 Trade is a crypto analytics and social trading platform. The platform offers customers metrics, social trading tools, and signals to help investors make wise selections.
The cost of the token will rise 39% during the nine-stage presale, from $0.0476 to $0.0662. There are one billion D2Ts available in total.
C+Charge (CCHG)
C+Charge is a new project that uses blockchain technology and cryptocurrency to locate charging stations and pay for their recharge using CCHG, the network’s native cryptocurrency. The token costs $0.013 in the first stage and will cost $0.0235 in the fourth and final stages, a rise of 80%.
Significant VC funds, including a16z, Invesco, and Samsung Next, have already invested over $70 million in the platform.
Final thoughts
Crypto tokens are one of the most common types of investment in the cryptocurrency sector today. Investors can store value or make purchases using their crypto tokens. As technology progresses, crypto tokens will continue and leave their mark in the crypto sector.
