In this article, you will learn what is the definition of token in crypto. The term “token” has a few different meanings in cryptocurrency and in general. If you are into the crypto field trying to do investments and crypto related sort of things, you will need to know the basic terms of crypto.
What is the Definition of Token in Crypto?
In cryptocurrency, “token” is often used as a synonym for “cryptocurrency.” Often the two terms are combined and the term “cryptocurrency token” is used.
Token is a unit of value issued by a tech or crypto start-up, intended to be a piece in the ecosystem of their technology platform or project. Tokens are supported by blockchains. They only physically exist in the form of registry entries in said blockchain 。 Initially, most tokens were based on the ERC20 protocol by Ethereum.
Tokens are different from bitcoins and altcoins in that they are not mined by their owners nor primarily meant to be traded (although they may be traded on exchanges if the company that issued them becomes valuable enough in the eyes of the public), but to be sold for fiat or cryptocurrency in order to fund the start-up's tech project.
In computer security and cryptocurrency, the term token is generally referring to a cryptographic string of numbers and letters that contains no real data but relates back to real data (that cryptographic code is a “stand-in” for real data). , this type of token can be called a “security token”.
Different Ways the Term Token is Used in Cryptocurrency
With those general points in mind, the term “token” is used a few different ways in cryptocurrency (some noted above, some not noted yet).
In cryptocurrency:
- The term token is used in a very general sense to describe any digital asset (where Bitcoin is a “cryptocurrency token” and Ether is a “cryptocurrency token”… but even cryptos not meant to be used as money, like the collectable CryptoKitties, still exist as tokens).
- The term token is used to describe a unit of value (I have X Bitcoin tokens). Here it refers to the fact that cryptocurrencies, like the US dollar, are value tokens / currency tokens / token money (they represent value, but are 't themselves of any inherent value)
- The term token refers to the fact that the creation, transfer, and storage of cryptocurrencies use strings of numbers and letters called tokens (tokenization is a type of encryption). In cryptocurrency transactions, tokens are created and sent through the internet when transactions are created and exists as entries on a given coin's blockchain / ledger.
- Meanwhile, sometimes when people say “token” they are specifically referring to digital assets that are built on another cryptocurrency's platform like Ethereum's ERC-20 tokens, ERC-223. ERC-721. and ERC-777 tokens. The native token on the Ethereum platform is Ether, 0x for example is a ERC-20 token created from the 0x ICO. Both Ether and 0x are cryptocurrencies (AKA tokens) on the Ethereum network, but one might refer to 0x as “a token” to differentiate it from the native cryptocurrency on a platform / network / blockchain.
- Token can also be used to describe “utility tokens” which are strings of data that can be used for specific functions in specific systems (such as a token that lets you access a certain amount of cloud storage).
- Token can also be used to describe “security tokens” which are strings of numbers and letters used in computer security (encrypted strings of numbers and letters). TIP: Security tokens used in computer security should be confused with Ethereum-based ICO tokens might be considered financial securities in the eyes of the SEC.
Bottom Line
In cryptocurrency the term token doesn't mean one thing, it refers to many things at once. In all cases, a token is “a stand-in for something else.” So, if you want to know more about token, this is about what is the definition of token in crypto.
