2021/02/20

What the heck is a crypto token?

I found a variety of definitions and perspectives 

Coingecko: "Tokens and coins are often erroneously regarded as interchangeable terms. However, while both tokens and coins share technical similarity, tokens are usually built on top of a smart contract platform and are issued en-masse during its inception. Tokens grant its holders the right to take part in the issuing parties' network or product."

or short version: "Blockchain based unit of value issued by an organization, which grants token holders a right to participate in a network."

Coinmarketcap: "A digital unit designed with utility in mind, providing access and use of a larger crypto economic system. It does not have a store of value on its own, but is made so that software can be developed around it."

Coinbase gives a more practical definition: "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. 

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."

Cryptocompare gives a great example of the BAT token: "BAT token is primarily used to pay, or reward, content creators for their work. This type of incentivization scheme is fundamentally different from the traditional web monetization model that relies heavily on generating revenue from intrusive advertisements, in order to compensate content producers and pay for other management costs associated with operating an internet-based information resource."

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