What is a token? The difference between tokens and cryptocurrencies

What is a token?

08 Jan, 2020 Colin Baseman

The crypto industry leaves many newbies puzzled, because of the abundance of new terms and concepts. Among them are blockchain, ICO, mining, and many others. One of the concepts that are hard to grasp for them is «a token». So, Token VS Cryptocurrency. What is the difference? What are the types of tokens and where can we use them?

A token is a unit of accounting used to display a digital balance in an asset. Blockchain database is used for the process. To gain access to tokens you need to use special applications or digital signature. They are often managed through smart contracts.

What is the difference between tokens and cryptographic currencies?

The key difference between tokens and cryptocurrencies lies in the way they are issued. Tokens may be centralized (managed by one company) or decentralized (managed by a pre-established algorithm). For the latter, decentralized issuance is typical.

The cost of a token can be formed both taking into account supply and demand, and depending on additional factors (emission rules, binding to external assets, and the awarding order). Another difference from cryptographic currencies is the lack of its blockchain.

Use of tokens

Tokens are used in the following areas:

  • Financing. The sale of tokens makes funding of cryptocurrency projects with good liquidity a much easier task. The principle of accrual of income is similar to borrowed bonds. Tokens can be used as a financial transaction instrument. After a set time frame, they provide a fixed yield.
  • Payment in applications. Users of the software can acquire tokens for use as an internal currency. They can be used to make payments in blockchain systems of goods and services.
  • ICO tokensICO tokens provide distinctive new way of funding a project. They bring something to the table for everybody. Users win because of easier access to promising startups and secure way of investing. And the owners of a startup win because they do not have to share the right to manage their business and influence, unlike in situations with classical shares.

Advantages of tokenization

The use of tokens allows to:

  • increase the security of storing and sending transactions thanks to blockchain-based accounting;
  • expand the platform features and increase the infrastructure functionality by connecting auxiliary modules: invoice generation, multi-level authentication, card depositing, setting up regular payments, etc.;
  • increase the speed of trading operations by eliminating unnecessary stages (physical assets transfer, ownership documents issuing;
  • get rid of intermediary services, as the description of the conditions of participation is made at the level of smart-contracts;
  • improve usability: various platform capabilities can be built into the application's user interface.

 Tokens are widely used to implement cryptocurrency projects. With their help, you can attract additional funding, ensure the convenience of providing services and the easier online access to participation in business. Why not consider investing in tokens? Learn more about how to benefit financially from tokens.