Glossary

Tokens

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Glossary Crypto Heroes Tokens Lesson

Crypto tokens can be described as virtual currencies that are contained in blockchains and represent either an asset or utility. Tokens are developed on already existing blockchains. The Ethereum blockchain is the most popular blockchain token platform due to the development or facilitation of smart contracts. However, there are other token blockchains like NEO, Waves, Lisk as well as Stratis. Tokens developed on the Ethereum blockchain are referred to as ERC-20 tokens while those developed on NEO platform are called NEP-5 tokens.

Recently, Ethereum developed the ERC-721 standards that are used to create collectible crypto tokens such as  CryptoKitties and the Forever Rose  Any developer can create their own customized token in any of the blockchain platforms but one must have the technical ability to develop a token.

Difference between crypto coins and tokens

A crypto coin can be described as virtual money that is developed using the blockchain technology. Coins are used as a medium of exchange, store value, are portable and are in limited supply. Bitcoin, Litecoin, Ripple, and Monero are some of the widely used coins in the crypto space. Coins mostly exist on their individual blockchain platform. To put this into perspective, Bitcoin exists and function only on the Bitcoin blockchain platform and it is the same case with other coins.

Digital coins are used in the same way one uses real life or fiat coins as money. Therefore one can use the coins to transfer money or to price a product or service using them.

While the sole purpose of a coin is monetary uses, tokens are considered to be digital assets. Tokens are used in various projects as a means of payment within the blockchain network. They also allow users to participate in the network by allowing them to access different products or services provided in the system. For instance, Filecoin is used to pay users who provide data storage space.

Types of tokens

There are two major classifications of tokens; security or utility. The utility tokens are the ones that have a function within their blockchain network such as Filecoin. Utility tokens are used to activate various features of the application they were designed for. A good example is Musicoin token that is used in accessing various features of the Musicoin blockchain such as watching music videos.

On the other hand, a security token is essentially an investment contract that comes with legal ownership of a physical or digital asset such as real estate or artwork which has been verified on the blockchain. Security tokens are recognized as financial securities and regulated by the U.S. Securities and Exchange Commission. Security tokens mostly resemble the conventional stocks which pay dividends, and as such before issuing them, they must be evaluated by SEC.

Where can you buy tokens?

Just like crypto coins, you can buy tokens in exchanges such as Binance, Bittrex or Kucoin. They are kept in your digital wallet and you can transfer them to other addresses.

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