Crypto EDU

Token

  • August 2, 2021
  • Intermediate
  • bitcoin
  • cryptocurrency
  • cryptography
  • ethereum
Token Image

Tokens were originally conceived as a way to pay for goods and services. You can think of them as digital coins, although some have more specialized purposes. Tokens of Ether, for example, are necessary in order to create and use apps on the Ethereum platform. In that sense, they are like subway tokens, or arcade-game tokens. 

Almost all crypto platforms have their own tokens. Tokens can be either mined (like Bitcoin) or sold in an Initial Coin Offering, similar to the way a company will sell stock in an IPO. They can be used as a store of value or a tradeable asset. They can even be used to represent other tokens. (Wrapped Bitcoin, for example, is a token that represents Bitcoin on the Ethereum blockchain, since Bitcoin itself is not compatible with Ethereum.)

Most tokens are fungible, meaning that they are interchangeable with other tokens of their kind, but lately there has been a lot of buzz around “non-fungible tokens,” or NFTs. NFTs can have many uses, but one of the most common is to create unique digital collectibles. An NFT associated with a digital work of art, for example, can function as a certificate of ownership. NFTs can also be used to represent a physical asset, such as a vintage car, a rare wine, a house, or a physical painting. Once such assets have been tokenized, it becomes possible to trace their sequence of ownership on the blockchain. And, like every other token, the NFT itself has a market value that’s separate from the value of the thing it represents.

Why should you care about tokens?

Tokens are what you buy and sell on crypto exchanges, and on a platform like Ethereum, they are like the gas that makes the engine run. Consisting of nothing but a small amount of data secured on a blockchain, they can be used to represent—and attribute a monetary value to—almost anything you can think of.

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