Token – What is it? The difference between tokens and cryptocurrencies

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Is the token a cryptocurrency? What is the value of a token? What is a token? Tokens arrived long before the Internet, only now their use has expanded towards a more revolutionary concept, and their definition causes confusion. Below, we will explain what a token is, what it is used for, and what is the difference between Token and Cryptocurrencies.

What is a token?

A token is a virtual good, which is why it is identified as a virtual token, which has a certain value in the context in which it is dispensed. In general, in the world of cryptocurrencies, tokens are usually generated by cryptocurrencies that take advantage of blockchain technology and can be seen as specific gift certificates for a store. This means that they have their value, but it is limited to a particular concept, and just as a 100 euro voucher in a clothing store is worth 100 euro, but it is only valid in that store, and there may be particular conditions of use, in the same way, there are tokens that work in a similar way in the world of cryptocurrencies.

Blockchain technology

The peculiarity of the tokens is that they are based on a third-party blockchain; They require a blockchain – not their own – to function. Additionally, tokens allow those who design them to decide their purpose, content, and consequences. The most common means of creating tokens is the Ethereum platform, from which Smart Contracts or ‘smart contracts’ are executed.

Learn More, What Is Blockchain Technology? How Does It Work?

Difference between token and cryptocurrency

The substantial difference between token and cryptocurrency consists in the fact that while cryptocurrencies are obtained, for example, through mining and then traded, the token is simply produced and can therefore be bought and sold right away.

Many of the tokens in circulation are produced by Ethereum, thanks to the possibility of carrying out smart contracts. In this way, anyone can produce tokens with an ICO, thus creating a distinction between currencies that have their own register (usually a blockchain) and tokens that do not use their own register but of another cryptocurrency.

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However, it is possible to distinguish several types of tokens

Security Tokens

Those that generate expectations of obtaining economic benefits. They are used as a means of investment.

Utility Tokens

Those that do not generate expectations of obtaining economic benefits. Oriented to offer a concrete utility in a platform or application, which confers rights to use certain products or services.

Equity Token

They are those that represent the possession of an asset, whether it is a debt, shares of a company, etc.

Conclusion

As already seen on many occasions, the world of cryptocurrencies is constantly evolving, a bit like the value of cryptocurrencies is constantly evolving, and we often get lost when there is an ever-new influx of news.

Tokens are something that could be very useful to you, but in the same way that you have probably lost this information, in the same way, many people have started to overlap concepts, which is why there is still some information that is not very clear, such as the number of types, of tokens and their nomenclature.

To generate even more confusion, there are elements such as the fact that some tokens are actually usable as a form of payment, but we hope to have clarified with this article what actually are the differences, especially as regards the functioning.