Cryptocurrencies, tokens, Bitcoins…if all these words seem similar to you, this article will help to understand differences among these. To start with, let us give a definition to the term token. It is used in a very general sense to describe any digital asset. However, it may also be used to generally describe a unit of value.
Moreover, the mentioned above term also refers to the fact that the establishment, transfer, and storage of cryptocurrencies use strings of data called tokens. From this perspective, these are created and distributed through the Internet when transactions are created, and exist as entries on a given coin’s blockchain. It is also possible for people to use the term as a reference to digital assets that are built on another cryptocurrency platform like Ethereum ERC-20.
The last but not the least, meaning given to it is utility. These can be used for specific functions in specific systems. For instance, there are tokens allowing you to access a certain amount of cloud storage. Semantically, the term is either used to describe a cryptocurrency or a unit of value of a cryptocurrency or ICO tokens, especially those on a network like Ethereum’s.
According to the common categorization, there are generally two categories of cryptocurrency – altcoins and tokens. The functions of cryptocurrencies are pretty obvious, while those of the tokens are less known to the audience. Here are only some of them:
- A currency, used as a payment system between participants,
- A digital asset,
- A means for accounting,
- A share in a specific start-up,
- A way of preventing attacks,
- Payment for using a system.
Just like currencies, they exist in binary form and are stored on digital appliances. The control for access and exchange of these assets is not on a public blockchain though, but rather on private ledgers maintained by individual companies or project teams. One example of its use is BurgerKing Russia which launched a token called the Whoppercoin. The rationale behind it is that consumers purchasing Whopper sandwiches receive one token for every ruble spent, and can redeem 1700 os those for one free Whopper.
All in all, tokens act as a representation of an asset or utility residing on top of another blockchain. It can represent basically any assets that are fungible and tradeable, from commodities to loyalty points to even other cryptocurrencies. Tokens are created and opened to the public through ICO, which allows companies and innovative startups to find significant funds for the subsequent project development.