Cryptocurrency token – what is it?

Cryptocurrency token – what is it?

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Investments in cryptocurrency and earnings on the cryptocurrency exchange is one of the TOP topics. Thousands of cryptocurrencies have emerged in recent years , but they are not the only kind of virtual assets. Today, the topic of tokens is gaining popularity in the cryptocurrency industry . We will tell you what tokens are in cryptocurrency in simple words , about their types, functionality, differences from crypto.

What are cryptocurrency tokens?

A cryptocurrency token is a virtual currency, more precisely, a digital certificate confirming the obligations of the developer to the buyer of the asset. In the field of cryptocurrency tokens are compared to shares that can be bought or sold on the stock exchange.

When buying a token , you get a digital conventional unit, its price is expressed in a certain asset. Translated from English ” token ” means a token. Blockchain- based companies issue tokens as an internal currency, its owners can only use it within a specific project.

Options for using tokens in cryptocurrency :

  • identification, proof of involvement in investments in a specific project;

  • purchase of services or services of a company operating on the blockchain ;

  • settlement within games and services.

Types of tokens cryptocurrencies

Today there are many types of tokens that differ in functionality. Main classification:

  • Security tokens or investment tokens . These are analogues of shares, their companies issue them in order to make it easier for investors to invest money and make a profit.

  • Utility tokens or utility tokens . They are created to generate a digital currency used within a specific project. For example, a utility token can be used as play money.

  • Asset-backed tokens or commodity tokens . This type of digital coins, the course of which is backed by real-life assets with high liquidity. The rate of commodity tokens may depend on the price of gold or oil, as well as on the cost of certain services. The token development company undertakes to pay the client the value of the asset or exchange it for a specific product or service.

For long-term investment, experienced players in the cryptocurrency market often choose a commodity token . By backing virtual currency with real-life liquid goods or services, it is not subject to fluctuations as much as cryptocurrencies are , it is more stable, reliable and safer for investments.

Difference between token and cryptocurrency

Cryptocurrency is decentralized – this is one of its main features. In simple words, it functions thanks to an unregulated algorithm. Unlike cryptocurrencies, tokens can be centralized and decentralized. The developer is responsible for the operation of the centralized token . This company conducts all transactions related to the token , processes information about it, controls the issue of coins and their number.

token rate , like cryptocurrencies , depends on supply and demand, but not only. Also, the price of this type of virtual assets may vary depending on the conditions of issue. Another difference is the blockchain feature . Cryptocurrency has a unique non-fungible blockchain , but a token does not have a unique blockchain .

Where to buy and store tokens?

buy tokens on trading floors or in exchangers , just like cryptocurrency . The acquisition process is very similar to buying Bitcoin or any other cryptocurrency . You need to store tokens on special wallet applications that are released by the asset developer. To protect the wallet with tokens , the owners use digital signatures. As a rule, wallet applications for storing tokens are free.

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