A token (token — "a chip, a mark") is a record in a decentralized database that denotes a certain object, right or value. The key difference between a token and a classic cryptocurrency is that it has no blockchain of its own but is issued on the basis of an already existing platform using smart contracts. Thanks to this, tokens can be created quickly and without building a separate network.
Main types of tokens
- Security tokens (equity tokens) — act as an analogue of shares or stocks and are linked to investment rights;
- Utility tokens — provide access to a project's products or services, for example serving as the internal currency of an application or platform;
- Asset-backed tokens — secure obligations backed by real goods, services or other assets.
Tokens underlie a significant portion of decentralized applications and are used for governing projects, settlements, rewards and representing digital rights. Their functionality depends on the logic of the smart contract, so before interacting with a particular token it is important to understand exactly what role it plays within its ecosystem.
