Cryptocurrency tokens represent a fundamental innovation in blockchain technology, enabling diverse functionalities beyond simple value transfer. Unlike native blockchain coins like Bitcoin (BTC) or Ether (ETH), tokens are created by projects leveraging existing blockchains. This guide explores their classifications, standards, and real-world applications.
Tokens vs. Coins: Key Differences
- Coins: Native assets of a blockchain (e.g., ETH on Ethereum).
- Tokens: Built atop existing blockchains (e.g., UNI, AAVE on Ethereum).
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Token Standards: The Backbone of Interoperability
Tokens adhere to blockchain-specific standards ensuring compatibility:
| Blockchain | Common Standards | Use Case |
|------------|--------------------------|------------------------------|
| Ethereum | ERC-20, ERC-721, ERC-1155| Fungible/NFT tokens |
| BNB Chain | BEP-2, BEP-20 | Cross-chain transactions |
Example: ERC-20 governs fungible tokens like DAI, while ERC-721 underpins NFTs like CryptoPunks.
Major Types of Cryptocurrency Tokens
1. DeFi Tokens
Facilitate decentralized finance protocols:
- AAVE: Lending/borrowing.
- UNI: Decentralized exchange liquidity.
2. Governance Tokens
Enable community voting:
- MKR (MakerDAO): Decides collateral types.
- CRV (Curve DAO): Adjusts fee structures.
3. NFTs (Non-Fungible Tokens)
Represent unique digital ownership:
- CryptoPunks: Iconic generative art.
- Doodles: Community-driven collectibles.
4. Security Tokens
Digitized traditional assets:
- tZERO: Compliant equity trading.
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FAQ: Addressing Common Queries
Q: Can tokens become coins?
A: Yes—if a project migrates to its own blockchain (e.g., Binance Coin transitioning from ERC-20 to BEP-2).
Q: Are all tokens fungible?
A: No. NFTs are unique, while DeFi tokens like UNI are interchangeable.
Q: How do I store tokens safely?
A: Use wallets supporting their standards (e.g., MetaMask for ERC-20).
Conclusion
Cryptocurrency tokens democratize access to financial services, governance, and digital ownership. Understanding their standards and use cases empowers participation in blockchain’s evolving landscape.