What Is a Crypto Token? Definition & FAQs

You have probably heard of crypto tokens, but what are they? In the digital cryptocurrency world, crypto tokens are often created, distributed, sold, and circulated through specific processes. These tokens can be used as substitutes for particular assets in the market. If you want to learn more about crypto tokens, you have come to the right place. We will look at the crypto token and help answer some of your pressing questions. 

Looking to learn more about the basics of Crypto? Check out our Crypto terms every investor should know.

What Is a Crypto Token?

Crypto tokens are unique virtual currency tokens. These tokens also represent how particular cryptocurrencies are denominated. Some tokens represent tradable fungible assets and reside on their own blockchains. The token holder can use it for economic purposes or investment opportunities. In most cases, crypto tokens are used for fundraising crowd sales, but some individuals use them for other purposes. During an initial coin offering (ICO), crypto tokens are created, sold, and circulated, which helps to crowdfund the project’s development. 

Related: How to Invest in Crypto (Without Buying Cryptocurrency)

How Crypto Tokens Work

Crypto tokens can be used as tokens for many different purposes. These virtual currencies will have a specific denomination in the blockchains. The blockchains act as a unique database that stores information in the blocks. These crypto tokens, also called crypto assets, represent a specific unit of value.

The term “crypto” refers to a specific encryption algorithm and cryptographic technique that safeguards these entries, such as hashing functions, public-private key pairs, or elliptical curve encryption. On the other hand, cryptocurrencies are the systems that allow for secure payment by using these denominated virtual tokens (i.e., crypto tokens). These tokens can be found on the ledger that details the entries internal to the system. 

These crypto assets act like the transaction units on the blockchain, often created using the standard template found on the Ethereum network. With that, the user can create other tokens. These blockchains work on the concept of decentralized applications or smart contracts, which have self-executing applications that can manage the transactions and process them on the blockchain. You can usually find a smart contract within the terms of an agreement between the seller and buyers, which are directly written into the code. That code will control the execution, making the transactions irreversible and trackable. 

What does that mean? Crypto tokens are used for a wide range of purposes. A crypto token can represent a specific number of “customer loyalty” points on the blockchain, like those used in a retail chain. Another crypto token can entitle the token holder to view a set number of hours for streaming content on a video-sharing blockchain. Mosty, a crypto token will represent specific cryptocurrencies. For example, one crypto token can equal 15 digital coins in a particular blockchain.

Many of these crypto tokens are transferable and tradable between the participants in the blockchain. While crypto coins are usually only designated to make purchases, the holder can use the crypto token for various purposes, including storing value and making investments. 

Related: Crypto Crash: How to Navigate a Downturn 

Special Considerations

Often, these tokens are created through an initial coin offering, representing a cryptocurrency version of an initial public offering (IPO). When a cryptocurrency company wants to raise money, it will offer these tokens. With the offerings, investors will purchase the tokens. These investors can use the crypto token for many reasons; they can:

  • Hold them for a stake in the company
  • Trade them with other investors
  • Make purchases for services and goods
What Is a Crypto Token? Definition & FAQs, crypto-tokens-can-be-used-for-many-purposes-1024x576, Cryptocurrency , Unbanked, Unbanked Card, Crypto Card, Unbanked Debit Card, Crypto Debit Card, BlockCard

Crypto Tokens vs. Cryptocurrencies vs. Altcoins

“Crypto token” is used interchangeably for many altcoins and cryptocurrencies in the virtual world. While they may seem the same, they are different. A cryptocurrency is a standard currency used for receiving or making payments on the blockchain. The most famous and popular cryptocurrency is Bitcoin. Cryptocurrency is the superset, while crypto tokens and altcoin are considered part of a subset category. 

Altcoin refers to alternative cryptocurrencies; many were launched after Bitcoin’s success. This term often means an alternative coin to Bitcoin. Some of these coins include Litecoin, Namecoin, and Dogecoin. While some have been successful, none of them have matched the popularity of Bitcoin. 

Cryptocurrencies and altcoins are virtual currencies used as a medium for digital payments and reside on their dedicated blockchains. On the other hand, crypto tokens will operate on top of a blockchain, acting as a medium for decentralized apps or smart contracts. Along with that, these tokens can be used to make transactions as well. 

Related: How To Diversify your Crypto Portfolio

Crypto Token FAQs

Here are some answers to your frequently asked questions.

What Is a Crypto Token?

Crypto tokens are virtual currency tokens of a cryptocurrency. These tokens represent a tradable utility or asset that resides on a blockchain. 

What Is the Purpose of Tokens?

Crypto tokens serve many purposes. The holder can use them to make purchases or trades. These tokens represent an investor’s stake in a company, and the holder can exchange and use them to make a profit. 

What Are Different Types of Crypto Tokens?

Crypto tokens on the blockchain can include currency, utility, asset, reward, and security tokens

What Is the Difference Between a Crypto Coin and a Crypto Token?

The holder can only use crypto coins to make purchases. On the other hand, tokens can be used for trading, storing value, or as a form of currency. 

Is Bitcoin a Token or a Coin?

Bitcoin is a digital cryptocurrency. However, it does have virtual coins or tokens that can be used to make purchases or trade with other users.

What Is a Crypto Token? Definition & FAQs, crypto-tokens-can-even-be-traded-1024x576, Cryptocurrency , Unbanked, Unbanked Card, Crypto Card, Unbanked Debit Card, Crypto Debit Card, BlockCard

Crypto tokens are a vital part of the cryptocurrency world, but holders can use them for much more than making purchases on the internet. These tokens can be found in a variety of settings, but most notably as placeholders for rewards and assets. 

Are you looking for a new type of crypto banking experience? At Unbanked, we can help you find solutions for your banking needs. Learn more today!

The Latest

Unlocking the Secret Language of Crypto: Your Ultimate Slang Guide

The world of crypto is admittedly confusing. Some people have trouble understanding how it works and what it even is. Others have trouble understanding how they can operate within this world.  To make matters worse, crypto has so much slang associated with it that it has effectively formed a new language. Terms like FOMO, FUD,… Read Article

Unleashing the Power of ApeCoin: How One Cryptocurrency is Disrupting the Market

If you’ve been paying attention to the world of crypto or digital media, chances are you’ve heard of Bored Ape Yacht Club. Bored Ape Yacht Club is a massively popular NFT collection released by Yuga Labs. Now, the ApeCoin cryptocurrency is set to make as big of a stir as the NFT collection did.  So,… Read Article

The Future of Cryptocurrency: Proof of Stake and How it’s Changing the Industry

Cryptocurrency is constantly changing. However, one of the biggest recent changes is the shift away from proof-of-work and toward proof-of-stake. This has a pretty massive impact on how cryptocurrencies work.  But what is proof of stake? How will it change crypto? What do you need to understand about it? Keep reading to find out the… Read Article

Revolutionizing Transactions: How Smart Contracts are Changing the Game

Negotiating any sort of contract can be intimidating, especially when you are transferring money or other assets. In these cases, you want to be sure that the deal you are making will go through and that everyone will hold up their end of the deal. Otherwise, you may end up getting ripped off. Smart contracts… Read Article


6.38%

Crypto Rewards
on Spend

You also have access to:

BANK ACCOUNTS
DEBIT CARDS
BUYING, SELLING, & SPENDING CRYPTO


ARE YOU READY TO GET UNBANKED?


Nah, I enjoy high fees...

x
Want to be an owner in Unbanked? Limited shares available at a 20% discount. 🔥
This is default text for notification bar