Tokens – 1
One of the key elements of Web3 is the token.
Investopedia explains: “Crypto refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions. Cryptocurrencies, on the other hand, are systems that allow for secure payments online which are denominated in virtual tokens. These tokens are represented by ledger entries internal to the system…For example, you can have a crypto token that represents a certain number of customer loyalty points on a blockchain that is used to manage such details for a retail chain. There can be another crypto token that gives entitlement to the token holder to view 10 hours of streaming content on a video-sharing blockchain. Another crypto token may even represent other cryptocurrencies, such as a crypto token being equal to 15 bitcoins on a particular blockchain. Such crypto tokens are tradable and transferable among the various participants of the blockchain.”
Coinbase provides an overview:
“Token” is a word that you hear a lot in cryptocurrency. In fact, you might hear Bitcoin described as a “crypto token” or something similar, because — technically — all cryptoassets can also be described as tokens. But the word has increasingly taken on two specific meanings that are common enough that there’s a good chance you’ll encounter them.
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A “token” often refers to any cryptocurrency besides Bitcoin and Ethereum (even though they are also technically tokens). Because Bitcoin and Ethereum are by far the biggest two cryptocurrencies, it’s useful to have a word to describe the universe of other coins. (Another word you might hear with virtually the same meaning is “altcoin.”)
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The other increasingly common meaning for “token” has an even more specific connotation, which is to describe cryptoassets that run on top of another cryptocurrency’s blockchain. You’ll encounter this usage if you become interested in decentralized finance (or DeFi). While a cryptocurrency like Bitcoin has its own dedicated blockchain, DeFi tokens like Chainlink and Aave run on top of, or leverage, an existing blockchain, most commonly Ethereum’s.
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Tokens in this second category help decentralized applications to do everything from automate interest rates to sell virtual real estate. But they can also be held or traded like any other cryptocurrency.
Business Insider elaborates: “Unlike coins, which directly represent a proposed medium of exchange, crypto tokens are a representation of an asset. These ‘tokens’ can be held for value, traded, and ‘staked’ to earn interest. Some commonly seen tokens are Tether, Uniswap, Chainlink and Polygon. Tokens are used with decentralised applications (DApps) and usually built on top of an existing blockchain. While tokens get to share the benefits of an existing blockchain, they do so without an independent infrastructure…Some tokens like Tether — a stablecoin backed by commercial paper, which is the promise to repay short term debt by companies — make use of more than one blockchain to gain speed and reduce user costs. So, unlike coins, tokens can choose to not be ‘bound’ to a single blockchain, gaining flexibility and becoming easier to trade.”
Wikipedia writes about non-fungible tokens (NFTs): “A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger. NFTs can also be associated with reproducible digital files such as photos, videos, and audio. NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files. The ownership that NFTs confer is not legally binding, and is often used as little more than a status symbol. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.”
