The world of blockchain has a lot of jargon. It’s full of terms that sound like they come from another century, and if you haven’t been paying attention to the space, it can be easy to feel like an outsider. If you’ve ever wondered what a “token” is or why it’s important to understand them, this article will explain it all in simple terms.
What is a Token?
You are a token.
You are the digital representation of a physical asset, service or currency. You can be used for many different things, but what does it mean to be a token? A token is simply an electronic record that can represent any item or thing in the real world. For example:
- If you have an apple and want to trade it with someone else who has another kind of fruit (say an orange), then you could use your apple as currency between yourselves by giving them one of yours and receiving one from them in return. This would work well if both parties were satisfied with this exchange because neither would need anything else from each other beyond their respective apples–they’ve both gotten what they wanted!
- Another example would be if we wanted a way to represent our ownership over something tangible like gold bars; instead of having actual gold bars we could instead use electronic tokens which represent our ownership rights over those physical assets stored somewhere else (such as at Fort Knox).
How Does Crypto Work?
You may have heard of the word “cryptocurrency,” but what does it actually mean?
Cryptocurrency is a digital currency that uses cryptography to secure transactions and control the creation of new units. Cryptography is used for security, identification and verification purposes. Digital ledger refers to the technology behind cryptocurrencies which ensures that transactions are recorded chronologically in an open and distributed manner so no single entity can manipulate them without being detected (decentralized). The digital ledger consists of blocks containing data about individual transactions; these blocks are connected together in order by way of a cryptographic hash function called proof-of-work consensus mechanism.
Why is it important to understand tokens?
If you’re not investing in crypto, you may be wondering why it’s important to understand tokens. You might also be wondering why people would want to invest in something that has no inherent value and is only worth what someone else is willing to pay for it.
Well, let me tell you: Tokens are the future! They can do things that regular money cannot do–and they’ll change everything from how we pay for goods and services online to how we interact with each other socially. Not only that but as more people adopt cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC) and ZCash (ZEC), there will be a need for more ways of exchanging these currencies between themselves without having go through centralized exchanges such as Coinbase or Binance which charge high fees when converting fiat currency into cryptocurrency or vice versa.
A token is not a security.
Security tokens are a hot topic in the blockchain space. But what exactly are they, and how do they work?
A security is an investment in something that gives you rights over or ownership of that thing. For example, if you buy stock in Apple Inc., then your ownership stake entitles you to vote on company decisions like mergers and acquisitions (M&As). If their value goes up or down based on factors such as quarterly earnings reports or product releases, then so too does your investment’s value increase or decrease accordingly.
In contrast with traditional securities like stocks and bonds which have been around for decades now–but also more recently with ICOs (Initial Coin Offerings) which have only been around since 2017–are what we call “utility tokens.” A utility token doesn’t give its holder any rights over anything except perhaps access to some product or service offered by the issuing company; therefore there’s no expectation of price appreciation from investing into them like there would be buying into other kinds of financial instruments where profit potential comes from either capital gains (i..e buying low & selling high) versus dividends paid out monthly/quarterly depending upon how long term investors choose
A token is an asset, like a stock, but it can be used in more ways than simply as an investment.
A token is a digital asset that can be traded and used to represent something else. It’s also not a security, as some people incorrectly believe. A token can represent ownership of something or provide access to something else.
A stock represents shares in company profits and has monetary value which can be used as an investment tool or traded on an exchange; it doesn’t necessarily have anything to do with what you’re buying from the company itself (for example, if you buy Apple stock today and sell at $200/share tomorrow, this doesn’t mean that your iPhone XS Max will arrive tomorrow).
The world of crypto can be confusing, but it’s important to understand how tokens work. A token is not a security and it has many different uses. The best way to learn more about tokens is by doing research on your own or talking with someone who knows about them!