What is a token and how is it different from a cryptocurrency?

The term “token” has been used synonymously to refer to any digital unit issued on a network of distributed ledgers (blockchain). However, they are actually two concepts that define different assets, so knowing the differences is essential to understanding why they work, how they are used and how they create value.

The word “token” is actually an anglicization of the word known in Latin America as “ficha.” This is a concept as old as human history and is not limited to the world of cryptocurrencies. It was used several times, for example, as a means of payment for the exchange of slaves, but also as a means of payment among the elite. However, with the arrival of the first cryptocurrencies and programmable decentralized networks, tokens took on another surprising appearance.

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When we talk about tokens in the world of Bitcoin and cryptocurrencies, we are referring to a unit of value issued on a decentralized network, created by an organization or individual to fulfill an economic, administrative or representative function in the community. William Mugaya, author of the book Business Blockchain, adds that these are entities created by entities.

The value of the token is closely related to cryptocurrency companies and individual users who can create assets other than their own currency by creating these units through the services provided by the blockchain network. For example, BTC is the cryptocurrency of Bitcoin, but tokens have been issued that use a ledger to record all types of transactions on this network.

How are tokens created?

Token generation varies from network to network depending on the nature and utility of the network. It is important to note that tokens can only be created on files, tokens or networks that have smart contracts or technology capable of recording complex transactions. It is common to see tokens on networks such as Ethereum, Bitcoin, Binance Smart Chain or Hive.

For smart contract networks, developers use smart contracts to program tokens on the network. This allows non-experts to identify the properties of the token. There are also websites and repositories that provide services/code for third parties to create from scratch.

For those interested in creating their own token, there are several pages that offer automated services to create these assets. However, it is always a good idea to have technical knowledge, understand its usefulness and carry out regular reviews to avoid technological problems.

20lab is one of those pages

How to use a newly created token?

Since tokens are a vast and diverse market, there is no single answer to this question. The term covers the different uses of assets on crypto networks and therefore varies depending on the purpose of each project or token. Some tokens are designed as tokens to facilitate network management. In this sense, it is used to vote on decisions made by organizations and platforms. Other tokens are a medium of exchange, like stablecoins. It can also be used as compensation for services within the system or as compensation for the use of exchange products.

I hope this little tutorial has taught you a little more about this world.