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What is a Token ?
What is a Token ?
In the world of crypto, a token is a digital asset created and managed on top of an existingblockchain⇗.Unlike native coins such asBitcoin⇗or Ethereum, which power their own blockchains, tokens are built using smart contracts⇗ on another blockchain most commonly Ethereum (ERC-20 standard).
Coins vs Tokens
It’s important to understand the difference:- Coins: Native to their own blockchain (e.g., Bitcoin on Bitcoin, ETH on Ethereum). Used mainly as money or to pay transaction fees.
- Tokens: Created on top of another blockchain. They can represent many things from voting rights to stable value or even real-world assets.
Types of Tokens
Tokens can serve different purposes:- Utility Tokens: Give access to a product or service (e.g., using tokens to pay for transaction fees in an app).
- Governance Tokens: Allow holders to vote on decisions in a protocol or on aDOA⇗.
- Security Tokens: Represent traditional assets like stocks or bonds but issued on a blockchain.
- Stablecoins: They⇗ are pegged to stable assets like the US Dollar (e.g., USDT, USDC).
- NFTs: Non-Fungible Tokens⇗ Unique tokens that represent ownership of specific assets like art, music, or collectibles.
Why are Tokens Important?
Tokens play a key role in the crypto ecosystem:- Power decentralized applications (DeFi⇗ platforms, DAOs, games).
- Enable new business models through token economies.
- Create communities by aligning incentives between users and developers.
- Bridge real-world assets with blockchain technology.
Risks and Challenges
While tokens are powerful, they also come with risks:- Regulation: Some tokens may be considered securities and face strict laws.
- Scams & Low-Quality Projects: Anyone can create a token, leading to many worthless or fraudulent ones.
- Volatility: Token prices can rise and fall dramatically.
In short
A token is a blockchain-based digital asset that can serve as money, voting power, access to apps, or representation of real-world value.Tokens are essential to DeFi, DAOs, NFTs, and the broader crypto economy but require careful evaluation before investing.