Why tokens?

Why are tokens so common and useful?

  • Although Bitcoin and Ethereum are theoretically considered to be tokens as well, the term "token" is used to refer to all other cryptocurrencies. Considering that Bitcoin and Ethereum are by far the most well-known cryptocurrencies, it is helpful to have a phrase to define the entire universe of other coins. (The phrase "altcoin," which has a similar connotation, may also be used.)

  • This second category of tokens enables decentralized apps to sell virtual properties as well as automate interest rates. However, they can also be used like any other cryptocurrency to own or trade.

  • The term "token" also has another, more specialized meaning that refers to cryptoassets that are built on top of the blockchain of another coin. This usage is also becoming more widespread. If you get interested in decentralized finance, you'll come across this usage (or DeFi). A DeFi token like Chainlink or Aave runs on top of or makes use of an existing blockchain, most frequently Ethereum's, whereas a cryptocurrency like Bitcoin has its own dedicated blockchain.

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