What Are Crypto Tokens?

Crypto tokens are like digital assets that live on different cryptocurrencies’ blockchains. Blockchains are super-secure digital ledgers. It stores info in linked blocks that can hold transaction records or smart contracts — programs that automatically enforce agreements.

For instance, when transactions in a cryptocurrency get confirmed, they’re bundled into a block and added to its blockchain.

Fact check: Almost every cryptocurrency has its blockchain. But if it uses another cryptocurrency’s blockchain, it’s a crypto token.

Tokenization Standards: How Crypto Tokens Are Built?

Usually, crypto tokens are built with specific rules, called tokenization standards, which are a blueprint for the token’s operation, design, and behavior on different networks. These standards coequally make crypto tokens storage, use, and exchange easier on blockchains as the chain’s native cryptocurrency.

The most common type of crypto tokens are ERC-20 tokens built on the Ethereum blockchain. They are like the standard model for tokens in Ethereum’s blockchain. However, other platforms, also have crypto tokens, like BEP-20 on Binance Smart Chain and SPL on Solana.

Let’s consider, ERC-20 tokens, they are super compatible with Ethereum wallets and can be used in every Ethereum-based app. This ease of use makes ERC-20 tokens pretty handy for traders who use different services on Ethereum.

Why Do Crypto Tokens Matter?

Crypto tokens are a game-changer for developers who want to create their cryptocurrency without building a new blockchain. Here’s why:

Easier and Faster Development: Tokens let developers skip the complex, costly process of creating a new blockchain. This speeds up the launch of new cryptocurrencies and allows developers to focus on innovation.

Secure and Efficient: Tokens use existing blockchains like Ethereum, which already have secure, efficient systems for processing transactions. which eventually saves time and effort.

Validator Networks: Cryptocurrencies need validators to confirm transactions. Building a new validator network is indeed a challenging task, but thanks to crypto tokens, they can use existing networks, simplifying the process.

How Do Crypto Tokens Work?

Crypto tokens are digital assets with value, like cryptocurrencies. They can be transferred, traded, bought, and sold, and are stored in blockchain wallets. Here’s a simple breakdown:

Transactions: When you use a crypto token, its transactions are processed on the blockchain it’s built on. For example, an ERC-20 token uses the Ethereum blockchain.

Versatile Uses: Tokens can do more than just act as currency. Here are some common uses:

Governance Tokens: These give holders voting rights in a crypto project. The more tokens you hold, the more influence you have in decision-making.

Decentralized Finance (DeFi): DeFi platforms offer financial services like loans, but instead of a bank, you use crypto tokens as collateral. Each platform has its token as the official currency.

Crypto Rewards: DeFi platforms reward investors with crypto tokens for lending their funds, providing an incentive to participate.

Non-Fungible Tokens (NFTs): NFTs represent ownership of unique digital assets, like artwork or game characters and the ownership is recorded on the blockchain.

Top Crypto Tokens

Now that we know what crypto tokens are, let’s look at some of the top ones:

Tether (USDT) and USD Coin (USDC): These are stablecoins pegged to the U.S. dollar, designed to maintain a price of $1. Both are built on the Ethereum blockchain.

Shiba Inu (SHIB): A meme token that saw its price soar in 2021 due to its popularity, though its value has dropped significantly since. It’s also built on Ethereum.

Chainlink (LINK): An Oracle network that lets smart contracts receive real-world data. It runs on the Ethereum blockchain.

Uniswap (UNI): The token for the decentralized exchange Uniswap, which offers cryptocurrency trading without a central authority. Like the others, it’s built on Ethereum.

The Bottom Line

Crypto tokens are digital assets used for transactions on a blockchain. They can be traded or exchanged, similar to cryptocurrencies. Tokens are often used to raise money through initial coin offerings (ICOs). While some ICOs are scams, many are legitimate. If you’re considering investing in crypto tokens, do not follow blindly but ensure apt research of the team or company behind them.