Crypto token meaning

Token is a technical term for "cryptographic assets" and "virtual currency." However, in other settings, it progressively takes on two more distinct meanings. To begin, it refers to all crypto assets other than Bitcoin and Ethereum (which are also tokens). Second, it refers to a specific crypto asset that operates on the blockchain of other crypto assets, such as several decentralized financial (or DeFi) tokens. Tokens may be used for a variety of purposes, including facilitating decentralized transactions and selling rare goods in video games. At the same time, any token may be exchanged and kept in the same way that any other crypto asset can.

Smart Contract Interaction Transactions vs. Transfer Transactions

The information being signed in Bitcoin and many other blockchains was about one account moving units from itself to another account. These units, known as cryptocurrency, are embedded within the blockchain program's software protocols. There is just one form of transaction in this system.

The term "token" is frequently encountered in the context of crypto assets. Indeed, you may hear that Bitcoin is a "crypto asset token" or something like. This is due to the fact that all crypto assets are, properly speaking, tokens. However, when the term grows increasingly frequent enough to have two distinct meanings, it is probable that you may come across this one.

"Token" is frequently used to refer to any crypto asset other than Bitcoin and Ethereum (which are, strictly speaking, also tokens). This is because Bitcoin and Ethereum are the two most dominant crypto assets, therefore having a term that refers to all other crypto assets would be advantageous. (You may have heard the term "altcoin," which has a similar connotation.)

Another, increasingly common meaning of "tokens" has even more specific implications and refers to crypto assets running on the blockchain of other crypto assets . If you become interested in decentralized finance (or DeFi), you will come across this usage. Cryptocurrency assets like Bitcoin have their own blockchain, but DeFi tokens like ChainLink and Aave run on and utilize existing blockchains. The most common of these blockchains is Ethereum.

This second-meaning token encourages decentralized applications to do everything from automating interest rates to selling virtual real estate. At the same time, you can hold and trade tokens like any other crypto asset.

What is the significance of tokens?

When investigating crypto assets, you'll come across this term frequently, therefore it's useful to recognize its typical interpretations. However, in addition to the approximate definitions provided in the preceding sections, there are numerous kinds of crypto assets that have "tokens" that bear their names. Let me provide some instances.

Token of governance

These are purpose-built DeFi tokens, and their token holders have a vote in the future of the board and other non-centralized protocols and apps (since they are decentralized). For example, all users of a popular savings protocol compound receive a token called COMP. This token holder can vote on how to improve the compound. The more COMP tokens you own, the more voting power you have.

The DeFi token

In recent years, a new universe of crypto asset-based protocols has arisen, with the goal of mimicking traditional financial system activities (lending, savings, insurance, transactions). These protocols create tokens that may be traded and held like other crypto assets and perform a variety of tasks.

Token of security

A new asset class aiming to become crypto assets that function similarly to traditional securities such as stocks and bonds. Its primary applications are the selling of stocks of firms that do not require the involvement of a broker (similar to the sale of stocks of corporations).

Non-transferable token (NFT)

NFTs symbolize ownership of one-of-a-kind crypto and real-world assets. These can be used to make digital creations more difficult to imitate or distribute. (Anyone who has visited a pirate site packed with the newest movies and video games understands the dilemma.) There will also be a limited quantity of digital art releases and a one-of-a-kind virtual object, similar to a rare item in a video game. These tokens can also be used to purchase assets.