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TOKENS: WHAT THEY ARE AND WHY THEY DIFFER FROM CRYPTOCURRENCIES.

Is the token a cryptocurrency? Is it a character from "Lords of the Rings"? What is a token?

Leaving technicalities aside, a "token" are non-extractable units of digital value that exist as ledger entries in blockchains. Tokens arrived long before the Internet, only recently have they been "rediscovered" and used in a more revolutionary way, and their definition causes confusion. In the world of blockchain technology, a token is a virtual token whose value is issued by an organization. Unlike cryptocurrencies, the use of tokens is very varied they come in many different forms: they can be used as currencies for specific purposes or encode unique data. In contrast, cryptocurrencies cannot be used in any way other than what was initially defined

Generally, the most common means of issuing tokens is via the Ethereum platform. An example is just "ERC-20 token", known to be one of the most widely used tokens in the cryptocurrency world. On this decentralized platform, developers design their applications or contracts on a custom blockchain. Strictly speaking, tokens are not cryptocurrencies like Bitcoin or Ether, but transferable units of value issued on a blockchain.

However, you can distinguish different types of tokens:

  • Security Tokens: represent financial assets; they are tokens that generate expectations of economic benefits. They are used as a means of investment;
  • Utility Tokens: an example of these tokens is BNB , which primarily serves as a discount token to pay trading commissions on the Binance exchange. However, it can also be used to pay for certain products or services;
  • Equity Token: characterize a percentage of the property that you actually own. In most cases, equity tokens represent a third-party asset, property or company.

Once you understand the position of tokens, it's important to clarify another important question:
What is the crucial difference between tokens and cryptocurrencies?

Similarities:

  • Both are units of value not physical currencies, accepted by a community;
  • Both are part of a blockchain;

Differences:

  • Cryptocurrencies operate with their own independent blockchain and can be mined;
  • Tokens are not born with their own blockchain, but rely on one of the existing ones and are not minable;