What Are Tokens and Why You Should Start Investing

Jan 3, 2022 | Crypto | 0 comments



The word “token” has been widely used around the world, thanks to the increasingly impressive popularization of cryptocurrencies. But do you know what a token is?

And why should you invest in them? Is there any difference between token and cryptocurrency?

Don’t worry: we’ll explain the differences between them so you never get confused again.

1*wQbpoyYy2rphq0uvHRkWSQWhat is a token?

Tokens are digital representations of some asset, be it a cryptocurrency, an NFT, a property, etc. They act as “contracts” that guarantee ownership of a certain thing to the users who own it.

FINMA, the Swiss government entity responsible for financial regulation, separated the tokens into four distinct categories:

Security tokens — They are used by startups in ICOs (Initial Coin Offer) to raise funds necessary for the execution of their projects;

Payment Tokens — Their purpose is to serve as a means of payment for goods or services;

Utility tokens — Decentralized applications (dApps) make use of this type of token to offer certain products or services, such as NFT games, for example;

Asset Tokens — A company can use these tokens to accurately manage all the assets it owns.

Token x Cryptocurrency

It is correct to say that every cryptocurrency is a token, but not every token is a cryptocurrency. After all, cryptocurrencies are used to buy and sell goods and services, while tokens can take on many other uses.

Therefore, it is correct to state that, in the Polkadot smart contract platform, its token is the DOT cryptocurrency. Likewise, in Ethereum, your token is the ETH cryptocurrency.

However, if the token to which it refers is related to an artistic work in NFT, it is not a cryptocurrency, but a digital representation that is equivalent to the right to possess the work.

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How to create a token?

The process can be either simple or complex, depending on your goals. The main methods are:

Create your blockchain — This process requires advanced programming knowledge. It is possible to create independent blockchains, or even run them in other consolidated ecosystems, such as Ethereum or Cardano. From there, you can create tokens according to your project interest;

Create tokens from an existing blockchain — Some blockchain platforms, like Waves, have very simple mechanisms for creating new tokens. The procedure is usually relatively quick, cheap and you will use a blockchain that is already consolidated. There are some services on the internet, such as OpenSea, that can be used to convert ETH to ERC-20 tokens.

Promising tokens

Here are some promising tokens for the year 2022. Keep an eye on them:

Ethereum (ETH)

According to the developer team, Ethereum 2.0 will (finally) be released next year, with profound changes in its system. The mining engine will move from Proof-Of-Work (PoW) to Proof-Of-Stake (PoS), plus other substantial improvements;

Solana (SOL)

It is a smart contracts platform that competes with Ethereum. It is highly scalable and solves several issues faced by the Ethereum team for years;

Polkadot (DOT)

The Polkadot smart contract ecosystem has a very bold goal: to connect with all running blockchains, the so-called cross-chain technology.

We hope this information will help you get a better view of the decentralized universe!

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