The growing popularity of cryptocurrencies in the world is now leading to the widespread acceptance of crypto tokens too. In the context of both new and existing users, it is essential to understand what crypto tokens are, what their functionalities are, and how these benefit an average user. Therefore, it is important to discuss some of the important features of crypto tokens such that new users have a clear understanding of these.
Basic Facts of A Crypto Token
Crypto tokens are units of value that blockchain organizations develop on existing blockchain networks. They may share certain compatible features with cryptocurrencies, but they belong to a different asset class. These can use the blockchain technology of Ethereum such as COMP, LINK, DAI, and CryptoKitties. Sometimes, there are common token standards for creating crypto tokens and it was built on top of Ethereum.
Features of Crypto Tokens
Crypto tokens have four defining features such as transparency, trustless, programmable, and permissionless. Permissionless essentially implies that anyone can take part in the system without the requirement to have any special credentials. Tokens are programmable because they run on software that has smart contract features. Transparency is a prominent feature where transactions are both verifiable and viewable by all members. Moreover, the rules of the token are transparent. Trustless means these tokens do not need any centralized supervisory authority for functioning.
Major Advantages of Crypto Tokens
These are highly advantageous for their users and this is why the popularity of these tokens is soaring.
Maintain Anonymity or Pseudo Anonymity
Most have this feature that guarantees the maintenance of the user’s anonymity. It usually does not store personal information and guarantees a considerable amount of privacy for all participants.
Earning Income
Blockchain is the main technology for crypto tokens. Some may open doors for a very active trading ecosystem.
Easy Access To Relevant Markets
Tokens invariably lead to the tokenization of crypto assets. Once it is complete, it becomes very easy to trade or exchange for any asset without any intermediaries on an international scale. Therefore, tokens lead to a frictionless market.
Integrations Are Deeper
Tokens enable deeper integrations for meaningful experiences. Due to the predominance of blockchain, the pain of creating dedicated channels and setting standards is done in a decentralized fashion. Therefore, blockchain stitches all the major stakeholders together and helps in better planning, implementation, and designs.
Types
Crypto tokens can be categorized broadly into utility tokens, security tokens, payment, and non-fungible tokens.
Utility tokens
Utility tokens can access blockchain products and services. For example, utility tokens can make payments on the Ethereum blockchain.
Payment tokens
Payment tokens are mediums of exchange and are referred to as coins. The main objective of these tokens is to store value and unit of account.
Security tokens
Stocks and shares comprise a part of traditional securities that form a part of security tokens. These are digital and liquid contracts that have some value like property.
Non-fungible tokens
Non-fungible tokens are unique because they denote ownership of specific assets that may or may not exist in the world. It may represent audio, art, video, etc.
Also Read- Crypto Community’s Wishlist for the Indian Union Budget 2024
Bottom Line
Crypto tokens are an important part of the decentralized financial system. Although cryptocurrencies dominate the sector, the tokens are not far behind and are gradually evolving to store value and secure online payments. The scope of constant improvement remains its recurrent feature. It is worth noting that the purpose and types of tokens vary considerably. In recent times, many companies have offered crypto tokens for ICO and it is advisable for new users to thoroughly understand, and research the team and the company offering them.
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