Cryptocurrencies and blockchain are on everyone’s lips. The term “crypto token” is often mentioned along with their names, but what is a crypto token, and what is a token in the cryptocurrency world? We’ll discuss it all and more in this article.
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Explanations and definitions of terms.
What is a crypto token?
In simple terms, a crypto token is a digital asset that can be traded on a blockchain network. Crypto tokens can be created for the purpose of utility, that is, to complete functions on a blockchain and/or provide functionality to users, or they can be created for the purpose of value exchange.
Types of tokens
There is no clear classification in the crypto world, but tokens can be roughly divided into the following:
📍 Security tokens
Investment tokens created to simplify investors’ lives. These are essentially shares of a company, certifying ownership and providing dividends.
📍 Utility tokens
These service tokens are designed to create a virtual currency within a business, company or platform. The function of a utility token is comparable to that of the tokens bought at an amusement park: The tokens are bought at the ticket office and feature the park’s emblem, and can be used to ride the carousel, buy merch or eat in the cafe. Visitors buy the amusement park tokens with real money, but the tokens work only within the park’s ecosystem.
📍 Asset-backed tokens
These tokens are backed by real, liquid assets such as currencies or commodities like oil and gold. The company issuing the commodity tokens must pay the value of the token to the owner or send the goods in exchange for the tokens.
📍 Non-fungible tokens
These non-exchangeable tokens, or NFTs, each have a unique cryptographic sequence and represent ownership of a specific asset such as art, digital property, rights to an ingame object and even real-world assets such as whiskey or forestland.
Coins or tokens?
Cryptocurrency, coin and token are often used synonymously, but they are different types of assets. The main difference between a coin and a token is where they operate. Coins are units specific to the blockchain on which they are built. For example, Ethereum is native to the Ethereum blockchain and Bitcoin was created for the Bitcoin blockchain.
Coins can be used for everyday transactions, such as online shopping or sending money to someone. If someone sends you Bitcoin, the blockchain facilitates an entry to increase the funds in your wallet and decrease the other person’s balance, thus completing the transaction.
On the other hand, tokens are not native to the blockchain they are working on. For example, many of today’s most widely used cryptocurrency tokens work and are exchanged on the Ethereum blockchain. Examples include Tether, which is pegged to the US dollar on a 1:1 ratio.
Tokens on Olymp Trade
Now that you can stop asking yourself, “What is a crypto token?” you can take a step further into the crypto world. With the Fourth Industrial Revolution inching closer every day, our lives are becoming more integrated with digital, decentralized finance concepts. If you’re ready to start building a strategy for trading on crypto, we recommend checking out the best technical indicators for crypto, then take a look at how scalp trading crypto may benefit your trading style.
On Olymp Trade Bitcoin, Ethereum and Litecoin can all be traded on, as well as the Basic Altcoin Index. You can also use the crypto token USDT to deposit and trade on the platform. With more freedom now than ever before, what are you waiting for? Start your journey today!Deposit USDT
Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.