What is Token?

Understand the difference between a cryptocurrency and a token & different types of tokens in the market.

What is a token?

A token is a unit value that exists on an existing blockchain. Tokens do not have their own blockchain but depend or exist on an existing blockchain of a cryptocurrency. Eg, Ethereum, Bitcoin etc. As token has a unit value, that value is tradable. The value can be in the form of coins, points, certificated, in-game items etc.

Tokens are often used to raise funds in an ICO (Initial Coin Offering) or crowdsale which can be compared to IPO (Initial Public Offering) of companies going public on stock exchange. In case of ICO, the companies go public on blockchain.

Just as you buy a share in a company in IPO, in ICO or Token Crowdsale the tokens you buy can be used to represent a share in the company or can be your voting rights for decision making.  The tokens therefore are also called cryptocurrency assets or crypto assets and crypto equity. 

The major difference between a cryptocurrency and a token is that cryptocurrencies have their own separate blockchain on the other hand tokens are built on a blockchain, such as Ethereum, Bitcoin, Waves etc., that facilitates the creation of decentralized applications.

 

Difference between ‘Security Tokens’ & ‘Utility Tokens’.  

Security tokens represent equity or debt of a startup and Utility tokens represent the right to use of a product or service, or cater to a specific function in the ecosystem of the startup.

The purchase of security tokens is seen as an investment because they represent ownership therefore, they are subject to federal securities regulations. On the other hand utility tokens are not considered as investments as they provide access to the product of service.

Security Tokens Utility Tokens
 Represent equity or debt of a startup.   Represent the license to use the product.
 Purchase of security tokens is seen as an investment.  Purchase of Utility tokens is not seen as an investment.
 Security tokens are subject to federal securities regulations. Utility tokens are not subject to federal securities regulations.