What are tokens?

Token Takeaways ✍

✨ Tokens are a type of asset that use blockchain and cryptocurrency technology, and they can take many different forms.  

✨ They are powerful because they are trustless, borderless, and permissionless.

✨ While there are thousands on the market today, there could be millions in the future. 

When we started hatching plans for token.com, we set out to build a tool that would support the growth of the token economy. We envisioned a tokenized world where millions of people would use tokens for different purposes every day. While we’re still building towards that goal, it’s clear that the technology is here to stay. But the concept of tokens still remains unclear to most people. This guide explains everything you need to know about them, and why the movement is so powerful. Read on to learn more. 

Tokens explained 🧠

So, you may be thinking “I know you’re called token.com, but what actually are tokens?” Good question, as it still confuses many people. 

Put simply, a token is a type of asset that runs on a blockchain. Tokens are also known as “cryptocurrencies” or “crypto,” which are the two most popular terms to refer to this type of asset today. 

Notably, some token experts make a differentiation between tokens and cryptocurrencies. They view assets like BTC and ETH as cryptocurrencies because they power their own blockchain networks (Bitcoin and Ethereum). Other assets like Decentraland’s MANA and Uniswap’s UNI are known as tokens as they are linked to applications.

But really, any type of cryptocurrency can be thought of as a token. 

The different types of tokens 👌

Tokens can also take many different forms. As we’ve mentioned, some power blockchain networks. For example, ETH powers Ethereum as you need it to pay for transactions on the network. 

Some tokens represent ownership in an application or project. Many decentralised finance projects release their own tokens to achieve decentralization and hand governance over to their communities. For example, UNI holders govern the future of Uniswap. This is the most common type of token in the space today. 

Other types include fan tokens. These assets are similar to membership cards that live on the blockchain. Read our guide to the Football Favourites Collection to learn more about how the football world is embracing fan tokens.

Tokens can also represent real-world assets like bonds, stocks, and traditional currencies such as the dollar. 

In recent years, the token economy has grown thanks to rising interest in non-fungible tokens, otherwise known as NFTs. These assets differ from major tokens like BTC as they are not interchangeable. 

If you trade 1 BTC for 1 BTC, the asset you receive will be the same. But every NFT is unique. This is powerful as they can offer provable ownership of any kind of asset. 

Fidenza #944 by Tyler Hobbs. As tokens can represent any kind of asset, digital artists like Hobbs have emerged as the pioneers of a new movement in the NFT space (Source: Art Blocks)

NFTs initially took off in the digital art space. But in the future, NFTs could also represent event tickets, authenticity certificates, housing deeds, and many other types of assets. 

Risk assets ⚠

Tokens are widely considered to be “risk assets,” similar to stocks or gold but with greater volatility. Some say that crypto is riskier than most other asset classes. This is because the token economy is young and projects are prone to extreme price volatility. Over the years that the space has grown, “crypto” and “Bitcoin” have become synonymous with market boom and bust cycles. To date, crypto has survived several boom and bust cycles.

Why are tokens powerful? ✊

So we’ve established how we define tokens. But what makes them powerful, and why would anyone use them? 

Anyone can launch a token. This is setting a new precedent where anyone in the world can create assets to connect with a global community. To date, decentralised finance and art-based projects through to sports teams and celebrities have launched their own tokens. But in the future, the token economy will expand as adoption grows and everyone with an Internet connection has a way to launch their own token. 

FC Barcelona is one of many several leading football clubs to issue its own fan token as the technology has grown (Source: Pau Barrena/AFP/Getty Images)

Additionally, tokens can represent anything. The first token, Bitcoin, emerged as a way to exchange and store value. Ethereum then pushed the space forward with the advent of decentralised finance and NFTs. Now, we have tokens for all kinds of assets. If tokenization succeeds, there will be millions of tokens in the future, and everything will be tokenized. 

The token movement is creating a monumental shift where people can use assets to express their values and support the things they care about. Tokens let people claim a financial stake in their interests in a way that’s never been possible before.

The importance of decentralisation ❗

You may be wondering how tokens make such a shift possible. The core premise of this innovation and its underlying blockchain technology is decentralisation. 

Since Bitcoin launched, cryptocurrency tokens have created a new universe of Internet-based value. You don’t need to use a central party such as a bank to hold, send or swap a token. They remove the need to trust third parties. In other words, they are trustless. 

Additionally, tokens can freely be moved anywhere in the world. You can transfer tokens anywhere at any time—you just need a blockchain address to send them to. This means that tokens are global and borderless. 

Token technology is also accessible to everyone. While it takes some learning to get to grips with the space, there’s no gatekeeping on who can enter—you just need an Internet connection to get started. As tokens let anyone participate and you don’t need to ask for permission to use them, they are permissionless. 

Blockchain technology is an important breakthrough for the world because tokens are trustless, borderless, and permissionless. They have these attributes because of the technology’s focus on decentralisation. 

How does the future look? 🔮

So we know that tokens are powerful, but they can also be very volatile. What does that mean for the future of the ecosystem? 

The token space is home to many promising projects that are building towards a better future. However, not every project will survive for the long term given the cyclical nature of the market. 

When the token space booms, many projects emerge and market valuations soar. However, the reverse is true in downtrends. 

Over the past 14 years, the token space has ballooned in size. Although volatility is likely to characterise the space for many years to come, it’s also likely that many more projects will emerge as the ecosystem continues to grow. If tokenization succeeds, tokens will represent all kinds of assets and new use cases will flourish. 

Though the future is hard to predict, the token space’s most ardent devotees believe in its long-term potential. Just as the Internet took decades to grow, the token movement could be years away from mass adoption. But once it gets there, its impact could be just as profound as the Internet’s was. 

Learn more 👀

We hope this guide offers some helpful insight on tokens and why the technology is so powerful. To learn more about the space and start exploring the ecosystem for yourself, head to the token.com app today. 

Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.