Tokens are another term that in all likelihood will come to mind if you are curious about how cryptocurrency works.
In connection with cryptocurrency, there are many words and expressions you have to get acquainted with and which you have to get control of in order to understand the totality of what you are doing. One of these terms is, as mentioned, tokens. Some may also call it crypto tokens. In other contexts you have probably heard of NFT – this stands for Non-Fungible Tokens.
In this article, we will take a closer look at tokens, so this is the term we will use here. After reading this text, you should, among other things, be able to distinguish tokens from cryptocurrency in a good way.
What is cryptocurrency?
Before we can go further into tokens (or crypto tokens), it is especially a question that is important to get answered. We are of course talking about the following questions: What is cryptocurrency?
As you read this article, the chances are relatively high that you have some idea of what cryptocurrency is. But we will still mention it anyway. Cryptocurrency is a digital currency that can be used for various processes using the Internet and other elements:
You can buy cryptocurrency (eg a quantity of bitcoins or a form of altcoins ).
One can sell cryptocurrency.
One can engage in the extraction of cryptocurrency (also called mining).
One can engage in cryptocurrency trading (that is, the purpose of the transaction is solely to make a profit out of it)
It is also possible to shop online and pay with cryptocurrency instead of using traditional payment methods such as bank transfer or credit card. Here, however, it is important to keep in mind that not all online stores allow this yet.
The common denominator for the traditional payment methods we know of is that they are centralized. This means that when a transaction is carried out with their help, a third party (eg the bank) is involved in the process. This is not how cryptocurrency works.
Cryptocurrency is exactly the opposite. It is a decentralized payment method, and it simply means that there are only two parties involved in the whole process. And it is the two who have something to do with the transaction, ie the sender and the recipient of the money.[nft] What are tokens?
When you speculate on a topic such as cryptocurrency, as mentioned, you will encounter quite a few different expressions. One of these terms is tokens.
Tokens can be defined as a subcategory of cryptocurrency.
But it is not only in connection with cryptocurrency that it is common to use this term. That’s why
The meaning of the word
Token is a word that can be used on a number of occasions. Because of this, this is also an expression that has quite a few meanings.
Tokens have several meanings in the financial sense, so it is quite possible that you have used it without being aware of it:
The token is a numismatic object , which means that it can be used for all economic values with the exception of coins and banknotes. This means that gift cards, discount coupons and the like are a form of tokens.
Tokens are also used in connection with the casino. It shows the chips you use to play for this concept.
It is also possible to find tokens in board games. In connection with board games and the like, tokens have been assigned the role of points or currency. In practice, this means that the tokens either tell you how you are doing in the game or that you can use it as a means of payment in the game in question.
It is also possible to find tokens in connection with weddings and in connection with trains. With regard to the latter, tokens have been given the role of signaling on the railway.
In connection with computer networks, tokens are a form of authorization password . This is a way of securing data, and it is probably this definition that is most similar to the definition that the term has been given in connection with cryptocurrency.
If we take as our starting point the last point where tokens are a form of authorization password. There we also mentioned that it is this definition that is closest to the definition that this term has in connection with cryptocurrency. So it has something to do with security.
Significance in connection with cryptocurrency
As we saw above, tokens are an expression that has many definitions. It all depends on the situation in which you are faced with this concept.
In some situations, this term refers to finances, fun (board games), fun that is not always as fun (casino) and computer security. But it is also very relevant in connection with cryptocurrency.
When defining the term tokens in connection with cryptocurrency, we can look back to what we mentioned regarding tokens and data security. It can act as a pointer to what tokens are, but it naturally depends on the type of tokens in question.
Tokens are often used to secure transactions, but can also be used to authenticate other digital things.
The difference between cryptocurrencies and tokens
It is not uncommon for people to be mistaken for what is a cryptocurrency and what is actually a token. If you’re one of those people who’s done that, then it’s not something you need to think about at all. You are not the first, and we can guarantee you that you are not the last either.
It’s easy to make mistakes on the go, and it’s not so strange either, since the difference between cryptocurrency and tokens is not really that big. But the difference is big enough that it is worth mentioning anyway. The main difference is how they work in practice.
Both cryptocurrencies and tokens are based on blockchain technology, and this is where the difference lies. We will try to draw a better picture of this below.
Most forms of cryptocurrency are made up of decentralized blockchains. The blocks in this chain cannot be used on other stands, but tokens can be used across different block chains. Tokens can be for example bitcoin tokens or litecoin tokens.
The block chain – a key element
If you perceive tokens as a difficult topic, then we fully understand it. However, we will make an effort to make it a little more understandable for you. In order for us to be able to do that, we have to take a closer look at the structure of the blockchain that we have been talking about.
All about Blockchains and cryptocurrencies .
If you have a few years of experience with cryptocurrency in general, then you know that most cryptocurrencies are built up of blockchain technology. The blocks that this chain is made of are structured in layers. Below we will take a closer look at the different teams.
Team No. 1
The first layer consists of different protocols. Which protocols are in question depends on which cryptocurrencies apply. Some classic examples of these protocols are the Bitcoin protocol and the Ethereum protocol.
In connection with cryptocurrency and blockchain, protocol is a term used to discuss how the different systems behind a cryptocurrency communicate with each other. The systems depend on a way of communicating with each other in order to work.
Protocol is also a term that can be used as another word for each individual blockchain that the cryptocurrency is made up of. A blockchain consists of a series of blocks, which contain lots of information and which communicate it to each other.
It is thus in the first layer that the communication between the different layers in the block chain (or protocol) takes place.
Team No. 2
The cryptocurrency is thus an essential part of the blockchain (or protocol), and theoretically this is something you find in the other layer of the blockchain. If you are a developer, and you are only looking for the actual code of the cryptocurrency, then this is where you should look.
In short, the current cryptocurrency (eg Bitcoin or Ethereum / Ether ) can be referred to as a code. And this code is part of the total blockchain.
Each cryptocurrency is given its own code which is used in connection with this. Therefore, it is important that you familiarize yourself with the codes you are looking for, before you start working. It will undoubtedly save you a great deal of time.
Since there are close to 1,500 cryptocurrencies, there are many examples in connection with this. However, we will go for the same examples that we have used above. Here is a selection of cryptocurrencies and their associated codes:
Bitcoin: BTC, but it is also possible that they have used XBT. This cryptocurrency has two codes, so you have to pay equal attention to both.
Ethereum / Ether: ETH
Team No. 3
After you have worked your way through the first and second layers, you come to the third layer. And it is also at this level that you will find what you are looking for – tokens.
Like cryptocurrency, tokens are also a unit that has a certain value. Therefore, it is not entirely wrong to say that tokens are a form of cryptocurrency. In other words, there is a good reason why people tend to mistake cryptocurrencies and tokens.
So in theory it is quite correct to say that tokens are a form of cryptocurrency, since both have a form of value. But that does not mean that cryptocurrency is the same as one or more tokens.
How do tokens work?
Tokens are made up of smart contracts. This is the same technology that makes it possible to develop decentralized applications.
There are different types of tokens, and they work in slightly different ways. And that’s something we’ll take a closer look at below.
Different types of tokens
But that sounds easy, you might think. But of course it does not stop there! There are different types of tokens.
When dealing with cryptocurrencies, it is important to have control over each type of token that exists. Tokens can be divided into two main groups, and these are called security tokens and utility tokens. These main groups we will take a look at below.
If you want, you can translate utility tokens into Norwegian, and then we get the term tool tokens. But even if it is something you can do, it does not mean that it is something you should do. In fact, utility tokens are much more prevalent as a concept, because it’s perfectly fine to use them as well.
Utility tokens are a term that refers to items that can be purchased and items that cannot be purchased.
However, it is not only the term tool tokens that can be used in connection with this. There’s another word for it too, and that’s app coins. This means that utility tokens refer to coins that can be used in connection with the use of various applications.
In other words, utility tokens are something a little different than cryptocurrency. While cryptocurrency is considered to be an investment for many, utility tokens were not seen as a form of investment in the beginning. The purpose was solely to gain access in apps.
The other main group of tokens we can count on today is a type of tokens called security tokens. The Norwegian word for security tokens are of course security tags.
NFT – complete guide to how to buy .
How to get started with tokens
Since tokens are a term that in this case is introduced above in connection with cryptocurrency, it means one thing. To get started with tokens, you also need to get started with cryptocurrency.
But since you have read this article, the probability that you are already there is very high. However, we want to give beginners some good tips on how to get started in a quick and easy way:
First and foremost, you need to decide which cryptocurrency you want to focus on.
Then you need to find a cryptocurrency exchange that offers this cryptocurrency
Create a user on the crypto exchange, and then make a deposit to your account.
Vipps then you are ready to engage in cryptocurrency and thus also tokens when you feel ready for it![nft]