What is token?
“Token” is an English term that means token or symbol . The word can be used to designate a physical or digital device that automatically generates passwords and is widely used by banks and logins on technology platforms.
In the crypto investment market, the token is the electronic representation of a real asset to facilitate asset negotiations. Be it a physical object, such as developments and equipment, or non-tangible products, such as copyrights and digital currencies.
Tokens are created to fulfill a specific objective defined by an organization or an individual and that can range from raising money to allowing access to services. All assets act as a medium of exchange and use cryptographic signatures for security and record keeping. But there are some fundamental differences. See what they are:
- Payment token
Cryptocurrencies are a type of payment tokens. This asset works like money, being used as a method of payment for goods or services, mainly in online environments. Due to the level of cryptographic security, electronic transactions with this tool are unlikely to be defrauded.
- Utility token
Utility tokens are the most common type, with the main function of granting holders access to a product or service, used during an initial coin offering (ICO). Businesses looking to raise money offer utility tokens to investors that they can use to buy goods or services they provide.
- Security token
Security tokens are tied to ownership of assets that already exist. Each represents a fraction of a tradable asset, such as a car, paint, stock, or real estate. This type allows transactions involving these assets to be tracked.
- Equity token
While security tokens can theoretically be tied to almost anything of value, equity tokens can only be backed by shares in companies or commodities such as coffee, oil and gold. These assets give the same rights as traditional papers and are regulated by financial authorities.
- Non-fungible token (NFT)
Non-fungible tokens (NFTs) are a way to digitally record ownership and transfer of unique, specific, and exclusive assets, such as a work of art or land in a digital world. The NFTs market exploded in 2021, catching the attention of investors.
Article originally published by Estadão.