Token

In technical terms, the word “token” just refers to a digital asset or crypto asset that is created on another cryptocurrency’s blockchain. It must be remembered that depending on different contexts, the term “Token” has acquired a couple of more specific meanings. Tokens can all be traded like any other cryptocurrency.

As we know, a blockchain is a database that stores information about transactions in the form of blocks that are linked together through cryptography. All cryptocurrencies are built on a blockchain. But in case a cryptocurrency does not have its own blockchain and rather uses another cryptocurrency’s blockchain, then it is called a token.

Thus, Token is used to describe certain crypto assets that reside on top of another cryptocurrency blockchain. Tokens have a large variety of potential functions. These include helping make decentralized exchanges possible to sell unique items in video games. However, they can also be bought and sold like any other cryptocurrency. Tokens also help decentralized apps to perform all the tasks, from automating interest rates to selling virtual real estate.

While a digital currency like Bitcoin has its dedicated blockchain, DeFi tokens such as Chainlink and Aave reside on top of an existing blockchain, usually Ethereum’s. Examples of Tokens that reside on blockchains are utility tokens, reward tokens, security tokens, currency tokens and asset tokens.

How Tokens help cryptocurrency companies raise money?

Tokens are also created via an initial coin offering, which symbolizes the cryptocurrency version of an IPO. Cryptocurrency companies also create Tokens to raise money. These tokens are bought by investors who are interested in the company. Meanwhile, there are certain reasons why investors can use crypto tokens. They can buy and hold a token to have a stake in the cryptocurrency company or for any other economic reason such as to trade or make payments. Bluzelle, a decentralized storage provider, allows traders to stake their native tokens because it helps secure its network.

Some of the few of the most common uses for crypto tokens include Governance tokens, Non-fungible tokens, crypto rewards, and decentralized finance.

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The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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