What is a token, this essential element in the blockchain universe?

1. A token, what is it?
2. What are tokens used for?
3. What are the different categories of tokens?
4. How to get tokens?
5. Conclusion on tokens

A token, what is it?

What are generically called cryptocurrencies are above all tokens, or tokens in French. Those are digital assets, non-duplicable, created and exchangeable on blockchains.

For the record, an asset is a good that has a value. And the latter can be financial of course, but it can also be a right to vote or property for example.

Associated with a blockchain that allows their exchange without duplication, tokens have made possible digitalization of value and its transfer to a decentralized digital environment.

Indeed, before the arrival of blockchains, we mainly resonated in terms of computer files. You could have the latest Daft Punk album, which is an asset in the sense that it has value, on your computer and send it to anyone while retaining the original.

However, what would the Mona Lisa, a gold bar or a Petrus 1982 be worth if we could multiply them as we see fit? Nothing.

This is why the notion of a digital asset that retains its value is considered to have developed with Satoshi Nakamoto’s invention, Bitcoin. And tokens are strategic components of this technological innovation.

What are tokens used for?

Once understood that the main advantage of tokens is thatthey can be exchanged without duplication thanks to the blockchainand that they have value, it is easy to find a whole bunch of use cases for them.

If everyone thinks of course of cryptocurrencies, which are tokens with monetary value, it is possible to “tokenize” almost everything. Whether they are tangible assets or not: real estate, CAC 40 shares, marriage contract or right of access to your favorite golf course, for example.

Once tokenized, all of these assets can be transferred, claimed, traded, bought or sold without the intervention of a trusted third party other than blockchain.

What are the different categories of tokens?

There are many types of tokens, each with their own characteristics and functionalities.

apart from native tokens directly linked to blockchains, which are also called corners, the other tokens come from smart contracts. Let’s see this in detail:

Native tokens

Often called “coins”, this designation tends to disappear in favor of the term “native tokens”. The main characteristic of a native token is that it is issued by a blockchain and essential for its operation.

For example, the bitcoin with a lowercase b, is the native token of the Bitcoin blockchain, which is designated with a capital B. Transferring bitcoins requires paying fees, also denominated in bitcoins, to the Bitcoin protocol. Then the minors who will register the operation in the blockchain will also be paid in bitcoin.

It’s this usefulness which gives value to the token and allows it to be used as a currency of exchange.

Finally, we can mention the best-known native tokens such as Ether from Ethereum, SOL from Solana or AVAX from the Avalanche blockchain.

Security tokens

The name can be misleading for French speakers. In English, security refers to a claim. Therefore, we will talk about security token during the tokenization of real assetssuch as a painting, company shares, or real estate.

We can take the example of RealT which allows toinvest in real estatelike an SCI, but with all the advantages of tokenization.

They are not the most popular tokens, because since they are backed by real assets, they are considered in many countries as financial assets (equity). They therefore fall under the scope of legislation and are more complex to implement. On the other hand, they are also the least risky since they represent a share of a real asset.

Utility tokens

This is by far the most represented category. These are tokens with a specific utility in a particular ecosystem. It can be a currency to pay for benefits, use a service provided by a decentralized application (Dapp) or obtain voting rights in a decentralized autonomous organization (DAO) among others.

Let’s take a few examples:

• the CHSB of the SwissBorg platform makes it possible to increase the interest of its cryptocurrencies placed in the Smart Yield;
• the token AAVE of the eponymous protocol provides governance rights;
• the BNB allows you to pay trading fees on Binance and brings a plethora of other benefits.

Non-fungible tokens (NFTs)

If everyone thinks of the different avatars that can reach crazy sums when talking about NFT, it’s actually much more than that.
A Non-Fungible Token, or non-fungible token in French, is a type of token in its own right, the usefulness of which will play a very important role in the future.

As a reminder, an asset is said to be fungible when it is interchangeable, because it cannot be distinguished from its peers. For example, bitcoins are fungible, just like £1 coins in a wallet.

Conversely, a non-fungible token is unique and identifiable. They are therefore used in digital art, to make a work unique, but can find an infinity of other applications such as for example:

• copyright protection;
• Ticketing ;
• diploma certification;
• traceability of a product’s supply chain;
• certificate of authenticity to fight against counterfeiting;
• intellectual property ;
• and many others.

There are many ways to get tokens.

The main one, of course, is to go to trading platforms of cryptocurrencies to buy them. If you want to go through one of these sites and don’t know of any, then check out our article on how to buy cryptocurrencies.

It is also possible to obtain it via Initial Coin Offerings (ICO), Initial Dex Offerings (IDO) or Initial Exchange Offerings (IEO). These barbaric names actually designate fundraising techniques. They allow blockchain startups to sell tokens linked to their project, in exchange for other assets that already have value on the market (BNB, AVAX, Ether, etc.) in order to finance their projects.

But buying is not the only solution.

On the one hand, it is possible to obtain free thanks to airdrops, or “drops” in French. Free tokens are then offered under certain conditions to those who meet predefined criteria.

On the other hand, you can earn tokens by participating in the maintenance of a network. This can be through transaction validation, or other tasks performed such as sharing its storage space (Sia, Filecoin, etc.).

Finally, regarding the particular category of NFTs, it is either possible to create them yourself (mint) or to buy them on dedicated marketplaces such as OpenSea or Rarible.

Conclusion on tokens

In summary, we can say that tokens are digital assets essential to the operation of blockchains and decentralized applications.

It is thanks to the different types of existing tokens that it is possible to digitally transfer value. This value can be financial or monetary, but can also represent monetizable rights.

Therefore, it is the confrontation between supply and demand to acquire the value embedded in the tokens that causes their price to fluctuate.

? To go further – What is Tokenomics? Understand everything about the token economy