What is a token, this essential element in the blockchain universe?

  1. A token, what is it?
  2. What are tokens for?
  3. What are the different categories of tokens?
  4. How to get the tokens?
  5. Conclusion on tokens

A token, what is it?

What are generically called cryptocurrencies are especially tokens, or tokens in French. They are digital assets, non-duplicable, created and exchangeable on blockchain.

For the record, an asset is an asset that has a value. And the latter can obviously be financial, but it can also be a voting or ownership right, for example.

Associated with a blockchain that allows them to be exchanged without duplication, tokens have made it possible digitization of value and its transfer to a decentralized digital environment.

In fact, before the arrival of blockchains, we mostly resonated in terms of computer files. You could have the latest Daft Punk album, which is an asset in the sense that it has value, on your computer and send it to anyone while retaining the original.

Now, how much would the Mona Lisa, a gold bar or a 1982 Petrus be worth if we could multiply them as you see fit? Anything.

This is why the concept of a digital asset that retains its value is believed to have developed with Satoshi Nakamoto’s invention, Bitcoin. And tokens are strategic components of this technological innovation.

What are tokens for?

Once you understand that the main advantage of tokens is thatcan be exchanged without duplication thanks to the blockchainand that they have value, it’s easy to find lots of use cases for them.

If everyone obviously thinks about cryptocurrencies, what are they tokens with monetary value, it is possible to “tokenize” almost anything. Whether it’s tangible or not: real estate, CAC 40 stock, marriage contract, or right of access to your favorite golf course, for example.

Once tokenized, all of these assets can be transferred, claimed, traded, bought or sold without the intervention of a trusted third party other than blockchain.

What are the different categories of tokens?

There are many types of tokens, each with their own characteristics and functionality.

in addition to native tokens directly linked to blockchains, which are also called corners, the other tokens come from smart contracts. Let’s see this in detail:

Native tokens

Often referred to as “coins”, this designation tends to disappear in favor of the term “native tokens”. The main feature of a native token is that it is issued by a blockchain and essential for its functioning.

For example, bitcoin with a lowercase b is the native token of the Bitcoin blockchain, which is designated with a capital B. The transfer of bitcoins requires the payment of fees, also denominated in bitcoins, to the Bitcoin protocol. Then the minors who register the operation in the blockchain will also be paid in bitcoins.

And this utility which gives value to the token and allows it to be used as a trading currency.

Finally, we can mention the best known native tokens such as Ether of Ethereum, SOL of Solana or AVAX of the Avalanche blockchain.

Security Token

The name can be misleading to French speakers. In English, security refers to a complaint. Therefore, we will talk about security tokens during the tokenization of real assetssuch as a painting, company shares or real estate.

We can take the example of RealT which allows thisinvest in real estatelike a SCI, but with all the advantages of tokenization.

They are not the most popular tokens, because since they are backed by real assets, they are regarded in many countries as financial activities (equity). They therefore fall within the scope of the legislation and are more complex to implement. On the other hand, they are also the least risky as they represent a share of a real asset.

Utility token

This is by far the most represented category. These are tokens with a specific utility in a given ecosystem. It can be a currency to pay benefits, use a service provided by a decentralized application (Dapp), or obtain voting rights in a decentralized autonomous organization (DAO), among others.

Let’s give some examples:

  • the CHSB of the SwissBorg platform allows you to increase the interest of your cryptocurrencies placed in the Smart Yield;
  • the token AAVE of the homonymous protocol provides governance rights;
  • the BNB allows you to pay trading fees Binance and brings a host of other benefits.

Non-fungible tokens (NFT)

If everyone thinks of the different avatars that can reach insane sums when it comes to NFT, it’s actually so much more.
A non-fungible token, or non-fungible token in French, is a type of token in its own right, the usefulness of which will play a very important role in the future.

We remember that an asset is said to be fungible when it is interchangeable, because he cannot be distinguished from his peers. For example, bitcoins are fungible, just like £ 1 coins in a wallet.

Conversely, a non-fungible token is unique and identifiable. They are therefore used in digital art, to make a work unique, but they can find an infinity of other applications such as:

  • copyright protection;
  • Ticket office ;
  • diploma certification;
  • traceability of the supply chain of a product;
  • certificate of authenticity for the fight against counterfeiting;
  • Intellectual property ;
  • and many others.

There are many ways to get tokens.

The main one, of course, is to go trading platforms of cryptocurrencies to buy them. If you want to visit one of these sites and don’t know any of them, check out our article on how to buy cryptocurrencies.

It is also possible to obtain it through Initial Coin Offerings (ICO), Initial Dex Offerings (IDO) or Initial Exchange Offerings (IEO). These barbaric names actually designate fundraising techniques. They allow blockchain startups to sell tokens linked to their project, in exchange for other assets that already have value on the market (BNB, AVAX, Ether, etc.) to finance their projects.

But buying isn’t the only solution.

On the one hand, it is possible to achieve free thanks to airdrops, or “drops” in French. The free tokens are then offered under certain conditions to those who meet predefined criteria.

On the other hand, you can earn tokens participating in the maintenance of a network. This can be done through the validation of the transaction or other activities performed such as sharing its storage space (Sia, Filecoin, etc.).

Finally, regarding the particular category of NFTs, it is possible to create them yourself (mint) or buy them on dedicated marketplaces such as OpenSea or Rarible.

Conclusion on tokens

In summary, we can say it tokens are digital assets essential for the functioning of blockchains and decentralized applications.

It is thanks to the different types of tokens that exist that it is possible digitally transfer the value. This value can be financial or monetary, but it can also represent monetizable rights.

Therefore, it is the comparison between supply and demand to acquire the value embedded in the tokens that causes their price to fluctuate.

👉 To go further – What is Tokenomics? Understand everything about the token economy

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About the author: Raffaele Lefèvre

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Coming from traditional finance, I am particularly interested in what is called tokenomics, or the mechanisms of token value creation. There is quite a lot of material on the subject, which is what I find exciting, even if everything in cryptocurrency is exciting.
All the articles by Raphaël Lefèvre.

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