Crypto tokens are the basic building blocks of the blockchain network that represent different assets. They are similar to cryptocurrencies. The only difference is that cryptocurrencies are native to each blockchain protocol.
In contrast, crypto tokens are built on an existing blockchain and are used to fund a particular project and sold through initial coin offerings of different exchanges. The main utility of crypto tokens is investment.
In this article, you will read more about crypto tokens and their working methods, their various use cases and understand the benefits that crypto tokens offer for its users.
More about Crypto Tokens
Crypto tokens are created on existing blockchains. They are represented by smart contracts. They can either represent a physical object or digital representations of specific features of the platform.
Crypto tokens are not legal tenders. They serve the purpose of facilitating trade or purchase of various utilities.
A crypto token can represent a share of ownership in a DAO, a digital product or NFT, or even a physical good in the digital space. They are like coupons or vouchers in the common parlance.
Crypto tokens are of different types based on their use cases. Some are utility tokens that are built to give access to their holders to various products and services on a given platform. There are also tokens called security tokens that serve the purpose of securities in the digital market.
Stablecoins are crypto tokens that are pegged to a stable fiat currency such as the US dollar. Governance tokens facilitate the governance decisions on a particular blockchain platform.
Non-fungible tokens (NFTs) are digital representations of artistic pieces such as paintings, music videos, films, etc. There is also another category of tokens called wrapped tokens which are linked to the price of another stable digital currency.
Crypto Tokens: How Do They Work?
Crypto tokens are built on specific algorithms that govern the working of the platform. For instance, they are secured by the conglomeration of public-private keys and hashing functions.
They are built on existing blockchains such as the Ethereum network and are built by programming the smart contracts of the platforms. These smart contracts are programmable and easily executable.
Crypto tokens work as a representation of the stake of the token holders in a particular token or can be used for the trade of various goods and services.
Some Real-world Use Cases of Crypto Tokens
Crypto tokens are usable for the cases given below.
- Asset Tokenization: Real-world assets such as real estate, pieces of art, or other commodities can be given value in the digital world through tokenization.
- Supply Chain Management: Another major area where crypto tokens can be utilized is supply chain management. The transfer of goods can be tracked and verified authentically by linking them to the crypto tokens. It is an easy, transparent way to improve the efficiencies of the supply chain industry.
- Securing the Voting Systems of the Various Blockchain Platforms: Crypto tokens can be used by their holders to vote to uphold the integrity and immutability of the voting system.
- Rewards and Loyalties: Rewards and loyalty points of various tokens can be accessed by users in the form of crypto tokens. They can be used across various platforms to redeem these benefits.
- Online Gaming: Crypto tokens can be used to facilitate online gaming utilities and can be used by its stakers to own and trade in-game utilities.
- Lending and Borrowing in the DeFi Sector: The decentralized finance system is marked by lending and borrowing activities which are conducted using crypto tokens. DeFi-based lending activities are more accessible to everyone over the globe and provide greater accountability and transparency.
Concluding Thoughts
Crypto tokens are an important part of the decentralized financial ecosystem. They provide high liquidity and are instantly available at any time. They provide high returns on investments and significant gains for early adopters.
Moreover, the crypto tokens are secure and immutable as they are built under the efficiency of blockchain technology.
Crypto tokens are useful as they can be adopted in any part of the world, even when traditional banking facilities are absent.
