FAQ 7 – What is a token?
Definition of a Token
A token has similar characteristics to crypto-currency…
A token is a digital token, an asset that can be digitally transferred between two people. It has the same characteristics as a crypto-currency.
It is thanks to the different types of tokens that exist that it is possible to transfer value digitally.
A token makes it easier for companies to raise funds.
... but differs from the coin in several ways.
Coin and token are two significant asset categories. A coin is a crypto-currency that has its own blockchain, while a token is a crypto-currency based on a blockchain of another crypto-currency. Thus, by being hosted on an already existing blockchain, tokens use the infrastructure of that blockchain more or less for free.
For example, the ERC20 token is based on the Ethereum blockchain and Tether is a stablecoin based on Bitcoin so it is a token even if it’s called “stable coin”.
Concept of tokenization
Blockchain France defines tokenization as the creation of the digital representation of an asset on a blockchain.
Tokenization is the representation of real estate on the blockchain by tokens. This concept allows a property to be resold or bought back with the gains shared.
The investment can then be divided anywhere in the world.
The different categories of token
– Plate-forme token : supports a decentralized application on the blockchain.
– Security tokens : ownership of another asset allowing their owner to invest in a blockchain project.
Security tokens are linked to the ownership of assets that already exist. Each security token represents a fraction of a tradable asset, such as a car, a painting, a share or a property. Security tokens allow transactions involving these assets to be recorded on the blockchain, so that their holders can trace them.
– Transactional tokens : a quick and easy way to transfer money.
– Utility tokens : can actively do something allowing their owner to access a product or service.
Their primary function is to guarantee access to a product or service to those who hold them. This is why utility tokens are often used in crypto-currency fundraising.
These utility tokens can be used in any way determined by the company, for example to purchase goods or services they offer.
– Governance tokens : allow their holders to vote on a particular issue.
NFTs, which stand for non-fungible tokens, represent digital assets. They allow the acquisition of assets and to register their exclusive ownership of them, via the blockchain.
The concept of non-fungibility means that tokens are not interchangeable.