No Stupid Questions: What’s a Crypto Token, Anyway?

The concept of transferring non-physical currency can be confusing to many. What exactly is being transferred – if anything – and what does a cryptocurrency actually look like? These are all valid questions, and ones that can be easily explained.

Crypto tokens commonly serve as units of cryptocurrency. They are designed to do the same job as physical tokens or coins like American cents, British pounds, etc. They are simple units of value that can be passed from one person to another.

At a technical level, a crypto token is a simple piece of code that is attached to a single user’s public wallet address. A crypto ‘wallet’ refers to a special type of computer software that is specifically designed to interact with blockchains and is where each user’s tokens are kept.

Unlike physically exchanging real cash from one person to another, transferring cryptocurrency doesn’t involve a transfer of value at all. It’s simply a case of updating the ownership of specific tokens to the new holder’s address. In this way, it’s not the tokens that are transferred between users in the network, but the addresses attached to each token are exchanged.

Read more: What Is Cryptography?

All data related to balances and accounts are stored on a blockchain, which is a continuous, digital record of which tokens are held by which users at any given time. All crypto tokens are identified by unique strings of code, although all the tokens of a certain type are usually treated as identical and interchangeable – much like individual U.S. dollar notes will have a serial number but can be mutually exchanged for another of the same face value.

The innovative feature of crypto tokens is they don’t need a privately managed bank ledger to keep track of how much you have in your account. Instead, that information is immutably logged on a transparent blockchain ledger and verified by all users in the network to ensure only valid transactions and balances are committed to it. This is why cryptocurrencies are referred to as “decentralized” payment systems.

Read more: How Do Bitcoin Transactions Work?

Non-fungible tokens (NFT) are a special type of crypto token that differs in a number of ways from all other traded crypto-assets in the market. The main difference is NFTs cannot be mutually exchanged as U.S. dollar bills or bitcoin (BTC) can. That’s because each NFT points to a completely unique item (whether it be tangible or intangible) and so it has its own perceived value. An easy way to think of NFTs is trying to imagine trading the Mona Lisa for a rare Pokemon card. The two items are completely different, with their own unique traits and features, meaning you couldn’t simply swap them like-for-like.

Bookmark (0)

Related Posts

Why Stablecoin USDC’s Unstable Weekend Matters

The second-largest stablecoin in crypto has restored its dollar peg after a tumultuous weekend, but it shows how important the token is in the ecosystem.

Bookmark (0)

What Is a ‘Fair Launch’ in Crypto?

It’s important to understand how new crypto tokens are initially distributed and who gets access to the first offering of a new coin, whether you’re an investor or thinking of launching a token of your own.

Bookmark (0)

How to Stake Cardano (ADA)

When staking ADA tokens, users can choose whether to outsource the process to delegate stake-pool operators or run their own Cardano staking pool.

Bookmark (0)

5 Cryptocurrencies You Can Stake: An In-Depth Guide

Make your crypto work for you and earn passively while holding.

Bookmark (0)

5 Social Media Crypto Scams to Avoid

The highly speculative nature of cryptocurrencies makes them an ideal target for scammers, especially on social media. Here’s how to protect yourself.

Bookmark (0)

Crypto Romance Scams: Don’t Fall for These Dating App Swindlers

Con artists preying on people looking for love is nothing new, but the latest scams have moved on from asking you to buy gift cards to an array of crypto scams.

Bookmark (0)

Leave a Reply

Your email address will not be published. Required fields are marked *