What Are Crypto Tokens?

POSTED ON MARCH 22 2024

Crypto market is a highly evolving dynamic finance realm that has gathered much momentum in the last one decade. It started with Bitcoin, the first cryptocurrency ever introduced, built on the blockchain network. Crypto tokens and cryptocurrencies are digital assets on the blockchain network, often confused to be the same, but having their own unique characteristics. If you are looking for trading opportunities in the crypto market, join Seven Capitals right now, a reputed brokerage firm based in Dubai, UAE. With us, you will be provided with high leverage options, round the clock customer support, high-end trading software, and due to our very low brokerage commissions, you don’t have to worry about trading fees eating up your profits ever again. 

In this blog, let’s learn what crypto tokens are, what are the key differences between crypto tokens and cryptocurrencies, whether bitcoin is a token, the types of crypto tokens available, and the use cases of crypto tokens. 

What are crypto tokens? 

Crypto tokens are digital assets built on top of blockchain networks with various purposes assigned to the same. When a new crypto project based on a new blockchain network is introduced, tokens are offered in the initial stages as part of Initial Coin Offerings or Initial Currency Offerings (ICO). ICO is an initial fund raising method in which tokens are offered in exchange for certain values or purposes that can be obtained by the buyer from within the project. The purposes of a crypto token include representing partial ownership, access to certain services within the crypto project, and the key to getting access to utilities within a specific ecosystem. By issuing tokens, the company which introduced the project can gather funds, and the buyer gets the mentioned benefits, and also the chance to convert these tokens to new cryptocurrencies once it gets established. 

What’s the difference between a cryptocurrency and a token?

For a new blockchain network, its cryptocurrency can be called as its native digital asset. A cryptocurrency acts as a currency that allows for transactions or acts as a medium of exchange. It operates separately from the project’s underlying aspects and powers the consensus mechanism as well as the security of the blockchain network. Also, the cryptocurrency is the one subject to trades and price fluctuations based on supply and demand. The traded cryptocurrencies can be converted to fiat currencies like the US dollar and withdrawn as well. Bitcoin, Litecoin, and Ethereum are some of the popular cryptocurrencies. On the other hand, crypto tokens are offered in ICOs for initial fund raising, as tokens of value that can be used to access various services within the blockchain network it is built upon. 

Is Bitcoin a token?

Bitcoin can be considered as a token as it is a digital asset, built on top of its own blockchain network. But, bitcoin began to be used on a wide scale and became so popular that it’s now considered as the first cryptocurrency. Due to its unique features, it’s now considered to be separate from being identified as a crypto token and more as a cryptocurrency. 

Types of tokens

There are many types of crypto tokens:

• Utility tokens are based on its utility, such as getting permission to access specific services or products. These can be used to access the services from within the same project’s ecosystem only. For example, you can use the tokens from the Ethereum blockchain to pay for transaction fees or get access to decentralised applications (DApps) from within the Ethereum ecosystem.
• Security tokens are similar to traditional securities, representing your partial ownership in the crypto project or company. This gives you various privileges such as voting rights and financial benefits such as dividends.
• Governance tokens give you the right to engage in a blockchain project’s or organisation’s decision making processes. The possessor of governance tokens gets the right to impart his inclinations on the direction of the project, protocol changes, and vote on proposals as well.
• Currency tokens are more like fiat currencies, acting as a medium of exchange. This can be another term to call cryptocurrencies. They can be used to store value, make transactions, use as a mode of payment, or traded in crypto exchanges.
• Non-fungible tokens (NFTs) were the most happening thing in the crypto world a while ago. NFTs are unique digital assets, such as artworks like digital paintings, collectibles, or in-game particulars. The term non-fungible indicates that they are interchangeable with other NFT assets, thereby respecting their originality and keeping track of the history of prices in which they are traded.

Use cases for crypto tokens

Crypto tokens are more than an instrument related to investment, offering many use case scenarios in multiple industries. For example, crypto tokens are a major power source for Decentralised finance, facilitating lending, borrowing, and trading within the DeFi protocols. Plus, crypto tokens can be used for supply chain management, by tracking the movement of goods and products. This ensures efficiency and transparency in the same. Additionally, crypto tokens can be used as event tickets, loyalty rewards, or even act as digital identities. Apart from all these, crypto tokens have a huge use case in the gaming world, often representing in-game assets, or rewards, or virtual currencies to conduct in-game purchases. 

Conclusion 

Crypto tokens vary from cryptocurrencies, the latter being a digital currency that can be used for transactions and trading. On the other hand, crypto tokens are normally issued during initial coin offerings, and have many utilities. There are many types of crypto tokens based on their features and use case scenarios, such as utility tokens, governance tokens, security tokens, currency tokens, and non-fungible tokens. They can be used to represent partial ownership in a blockchain company, or used to get access to certain products and services within the ecosystem, or get voting rights to determine the most important decisions taken by the crypto project, or make in-game purchases as well. Crypto tokens are vital digital assets in blockchain networks that power the crypto world. But, be wary of initial coin offerings as many scammers try to generate funds from the public by issuing fruitless tokens in worthless projects. Research well to avoid falling to crypto scams and invest in projects that prove to be secure and genuine only.

With Seven Capitals, you can now trade in multiple cryptocurrencies like Ethereum, Bitcoin, and Litecoin. Join Seven Capitals today to enjoy low fees, high leverage, 24/7 customer support, top-notch trading platform, get access to educational content, and much more. Also, grab the opportunity to trade on currency pairs, indices, metals, and energies, along with cryptocurrencies, all from a single place.