What is a Token?
A token is a digital asset built on top of a blockchain. While cryptocurrencies like Bitcoin or Ethereum are native coins of their blockchains, tokens are created using those blockchains to represent other types of value.
Real-World Analogy
Imagine a blockchain like Ethereum is a shopping mall. The mall has its own currency (ETH), but stores inside can issue their own gift cards or points — these are like tokens!
Types of Tokens
- Utility Tokens: Provide access to a product or service (e.g., UNI for Uniswap).
- Governance Tokens: Give voting rights in a decentralized project (e.g., AAVE, COMP).
- Security Tokens: Represent ownership in a real-world asset or investment (like shares or bonds).
- Stablecoins: Pegged to the value of a fiat currency (e.g., USDT, USDC).
- NFTs (Non-Fungible Tokens): Unique digital items like art, music, or gaming assets.
Tokens vs. Coins
- Coins: Native to their own blockchain (e.g., BTC on Bitcoin, ETH on Ethereum).
- Tokens: Created on top of an existing blockchain using smart contracts (e.g., SHIB on Ethereum).
In short: Tokens expand the use of blockchain beyond just money — they represent access, ownership, identity, and more.