Understanding the World of Digital Tokens: From Theory to Application

The emergence of digital tokens has radically changed the way value is exchanged online. But what do these digital assets actually mean? In simple terms, a token is a unit of digital value recorded on a blockchain, and it is not necessarily mineable. It acts as a software entry with a specific value within a certain system.

Multiple Forms of Tokens

Tokens do not come in a uniform shape – they have very diverse forms and purposes. Some can be used as a means of exchange within specific systems, or as unique cryptographic data such as non-fungible tokens (NFT). In addition, some tokens hold real value off-chain – they can be redeemed for tangible assets such as precious metals, real estate, or stocks.

How to issue tokens?

Companies and projects typically use existing blockchains to launch their own transfers. For example, the Ethereum network has been widely used to issue thousands of tokens that comply with the ERC-20 standard. This practice was particularly common during the wave of initial coin offerings (ICO) in 2017, when new projects launched their tokens in this way.

It is important to note that tokens are fundamentally different from base cryptocurrencies like Bitcoin or Ether. Base currencies have their own protocols, while tokens are transferable assets issued on top of existing blockchain networks.

Token Classifications by Function

Service Tokens vs. Security Tokens

The basic classification is based on function. Service tokens provide access to specific services or act as an exchange intermediary within the ecosystem. BNB represents a classic model here – it is primarily used for obtaining discounts on fees or as a means of payment for various services. On the other hand, security tokens represent actual financial assets. When a company issues tokenized shares through an initial coin offering, it grants owners ownership rights and profit rights – making them legally similar to traditional stocks.

The difference between fungible and non-fungible

exchangeable tokens

Imagine you have a banknote and you exchange it for another one – you get the exact same value, and it doesn't matter which unit you actually possess. This is the principle of fungibility. Tokens like BNB work in the same way – each unit is identical to the other in terms of value and characteristics.

Non-fungible tokens (NFT)

But the situation is entirely different with unique artworks or digital collectibles. Each unit has unique characteristics and cannot simply be replaced by another. An example of this is CryptoKitty – each piece has different traits and its own unique value. This distinction between fungible and unique units is fundamental to understanding the modern token world.