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Saroj
Saroj

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What is a Cryptographic Token?

Any idea about what is the token?

Well,

Before coming into Cryptographic Token, let's try to understand it in a very simpler way.

Have you ever bought a lottery ticket? A lottery ticket is kind of a token, it's for the prizes that maybe you can own. A token is a kind of something that can be exchanged for some assets or value in the future. Like this, tokens are also valid inside the cryptographic world.

Let's explore how.

Introduction

A cryptographic token represents a programmable asset that is created and managed by a smart contract. The smart contract decides the number of units to be created and handles the transactions involving the token and each token holder's balance.

Types of Tokens

In cryptography, there are mostly 3 types of tokens available. Those are

  1. Utility Tokens
  2. Security Tokens
  3. ERC Tokens

Let's discuss them one by one.

1. Utility Tokens

Utility tokens are user tokens that provide access to the products or services offered by the company. They can help in driving the internal economy within a blockchain project. They can be used to provide an advantage to the holders of the utility tokens. The holder can be privileged to do voting on the important decisions on the blockchain project.

Let's say I am doing a project with the help of blockchain. And the final product will come after 2/4 years. But I need some funds to manage the project, right? For that, I can create a token on the behalf of the project with very minimal cost. people can buy the tokens and they will also get benefited from this project as well as can use the other services provided by the company.

Ex:- Golem Network Token(GNT) provides the holder's access to the Golem ecosystem.

2. Security Tokens

Security tokens are tokens that represent legal ownership of physical or digital assets. They are generally tied to the company's profit and loss valuation. These tokens are heavily regulated, and failing to comply with the regulations shall have serious consequences which can even lead to the shutdown of the complete blockchain project. Some examples of security tokens are the Siacoin token, Blockstack STX token, etc.

3. ERC Tokens

ERC tokens are a kind of very useful token in the cryptographic ecosystem. Token management can be significantly standardized as it follows very similar functionality and attributes of domains where these are used.

The Ethereum community has taken a lead on this and EIPs standardized definitions for developers to code and deploy. ERC tokens define rules that will enable the tokens to be handled and exchanged between various DApps(Decentralized Applications) and wallets.

List of ERC tokens

  • ERC20 Tokens
  • ERC721 Tokens

I hope all of you got some basic idea about the tokens, their types, and their uses. I will create a new article specially for ERC tokens to describe in-depth.

Stay tuned for a new article.

Thanks for reading out this. Lots of love. :)

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