What is a token?

A token is a word that is often used to describe cryptocurrencies. But while cryptocurrencies represent a medium of exchange, tokens represent assets.

Tokens can be

  • Traded
  • Staked
  • Held for value

 

But, unlike cryptocurrencies, tokens are built on top of an existing blockchain using a certain token standard, like ERC-20 or ERC-721.

One of the examples of a token is Chainlink (LINK). According to the platform, LINK tokens are “used in the Chainlink network to compensate Chainlink Node operators for the retrieval of data from the external data sources, turning it to blockchain readable format, off-chain computation, and uptime guarantees.”

Tokens are not interchangeable. Take non-fungible tokens (NFTs), for instance. Their very essence is to represent a unique asset, so one cannot exchange them. Tokens also don’t require their own blockchain, and they don’t transfer value.

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