Token

📝 Definition:

Tokens are digital assets that exist on another blockchain.

Unlike Bitcoin (BTC) or Ethereum (ETH), which have their own blockchains, tokens are built on top of existing ones, like Ethereum.

Think of tokens as digital tickets or coupons.

For example, some tokens can be used to access services on a platform, like a ticket to a concert, while others might represent a share in a project.

🔑 Key Features:

  1. Platform Dependency: Tokens are issued on existing blockchains like Ethereum, Binance Smart Chain, or Solana.
  2. Types of Tokens: There are different types of tokens, including utility tokens, security tokens, and stablecoins.
  3. Standards: Tokens often follow specific standards, such as ERC-20 or ERC-721 for Ethereum, to guarantee compatibility with crypto wallets and exchanges.
  4. Programmable: Tokens can be programmed to do different actions thanks to smart contracts.

⚙️ How It Works:

  1. Creation (Minting): Tokens are created through a process called minting, where a smart contract on a blockchain issues the tokens.
  2. Utility: Tokens can be used for a wide range of things, such as accessing services, participating in votes, or representing ownership.
  3. Transfer: Tokens can be transferred between users via blockchain transactions.
  4. Burning: Some tokens can be destroyed (burned) to reduce the total supply, often as part of a deflationary mechanism.

💡 Applications:

  1. Utility Tokens: Used to access services or functionalities on a specific platform (e.g., Filecoin (FIL) for storage).
  2. Security Tokens: Represent ownership in an asset, such as shares in a company, and are subject to different rules.
  3. Stablecoins: Are indexed to the value of a fiat currency, like the US Dollar, to provide stability (e.g., USDT, DAI).
  4. Governance Tokens: Allow holders to vote on changes and decisions within a decentralized platform (e.g., Uniswap (UNI)).

🔍 Example:

Imagine tokens as digital coupons or tickets that grant you access to services or represent ownership.

For instance, using a utility token like Filecoin (FIL), you can pay for data storage on its network.

Or, with a governance token like Uniswap (UNI), you can vote on decisions that will change the Uniswap platform.