Token what is it and what is it for?
When entering the world of cryptocurrencies, we often deal with many terms, the meaning of which may be unclear to us. One such name is undoubtedly a token. Its definition may be incomprehensible, especially when we equate it with the definition of Bitcoin. So - how does a token work and what exactly is it?
Token - what is it?
To fully understand what a token is, one should refer to the terminology taken from economic sciences. A token is a numismatic item that differs from coins and banknotes, but has its value and presents specific currencies. The best example of tokens are tokens. In gambling games, they assume the role of an equivalent of a specific currency for which the player is fighting. It can therefore be said that a token is a unit of value, a way to define and manage a business. Due to these properties, tokens appear in the digital space in a much more numerous form than the cryptocurrencies themselves. First of all, we must remember that Bitcoin is not a token. What's more - the Bitcoin blockchain also does not produce tokens. We should take this into account especially when we are just starting our adventure with cryptocurrencies. While the term Bitcoin seems to be much more popular and easier to understand, the value of tokens is mainly based on the fact that they were used before the first blockchains were created. Due to the fact that they are units of value, they served well as authorization keys in computer networks. In banking, tokens and tokenization are developing due to the modernization of online banking networks. They are used, among others in the form of session identifiers, thanks to which we log into our online bank accounts.
What are the tokens for?
In the world of digital payments, tokens play a very important role. Although they cannot be paid for, they are used as a currency with a specific meaning. Tokens allow you to receive property rights, exchange for data transfers or work performed. So they can act as money when they relate to a specific service, such as a company or project. All types of coins work in the same way as traditional currency. Due to their functions, tokens refer to a wider space of activity than a simple purchase. We can pay with tokens in the case of an application or internet platform created for us.
Types of tokens
To become aware of the ways in which tokens are used, it is worth getting acquainted with their types. Each type of token is used for different purposes. Being aware of what types of tokens we can meet will allow us to properly understand their operation.
We divide the tokens into:
- cryptocurrencies - payment tokens. Thanks to them, we are able to carry out a specific service transaction. These types of tokens allow you to transfer their value to a specific sale.
- Utility tokens - strictly utility tokens. Thanks to them, we can provide ourselves with access to specific services that are planned by their creators for the future.
- Security tokens - i.e. asset tokens. This type is primarily about property rights. Security tokens can be identified with still functioning assets, bonds or investments.
- Commodity tokens - such commodity tokens that refer to goods that already have an established value (e.g. oil).
- Governance tokens - management tokens gaining in popularity. Thanks to them, it becomes possible to develop systems and participate in voting.
Although the difference between Bitcoin and tokens is not particularly important for the average user of digital space, the latter help in many network activities related to services and property exchange. First of all, for this reason, it is worth being aware of their type and function. The tokens gradually develop, and thus the ways in which they can be used increase. Due to their properties, they quickly enter the world of business and international transactions.
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