Token Examples: Utility Token, Security Token & Co.
Cryptocurrencies are more than just digital means of payment. In addition to classic coins like Bitcoin or Ethereum, there are also tokens that have different functions and areas of application. But what exactly distinguishes a token from a coin, and what types of tokens are there? Here you will find everything about tokens, including practical token examples.
Inhaltsverzeichnis
- 1 Token Examples: Utility Token, Security Token & Co.
- 1.1 How Does a Token Work?
- 1.2 Cryptocurrency: The Differences Between Coins and Tokens
- 1.3 The Most Important Types of Tokens
- 1.4 Utility Token – Access to Digital Services
- 1.5 What Are Tokens Used For?
- 1.6 Bitcoin and Ethereum – Coins of Special Significance
- 1.7 How Can You Buy and Use Tokens?
- 1.8 In Conclusion
- 1.9 Further Articles
How Does a Token Work?
A token is a digital unit created and managed by a Smart Contract on an existing blockchain. While a coin, such as Bitcoin or Ethereum, has its own blockchain, a token exists as part of an already existing network – often on Ethereum.
A token is based on specific technical standards, such as ERC-20 (for fungible tokens) or ERC-721 (for non-fungible tokens). These standards define how a token is generated, how transactions work, and how it is stored.
The functionality of a token is determined by programming code. A smart contract controls:
- Creation: How many tokens exist and who owns them.
- Transfer: Who can send and receive tokens.
- Additional functions: Some tokens enable voting rights, rewards, or access to special services.
An example: A company can issue a utility token that serves as an access key to its platform. Users can hold or transfer this token, but cannot use it outside the intended network.
By using smart contracts, tokens are transparent, tamper-proof, and traceable via blockchains.
Cryptocurrency: The Differences Between Coins and Tokens
A coin is an independent cryptocurrency with its own blockchain. Examples include Bitcoin, Ethereum, or Cardano. Coins are generally used as a means of payment or a store of value.
A token, on the other hand, is based on an already existing blockchain and can have more diverse functions. Tokens can represent assets, grant voting rights, or provide access to special services.
The Most Important Types of Tokens
Tokens are extremely versatile and differ significantly in their function. While some serve as digital access keys, others can represent real assets or even transfer ownership rights. The following overview shows the main types of tokens and their use cases.
Utility Token – Access to Digital Services
A utility token provides access to certain applications or services. It is not considered an investment object but rather a kind of digital key for a platform or network.
Example: A cloud storage provider could use a utility token to provide users with storage space. Anyone holding this token can exchange it for a certain amount of storage. Another example involves gaming platforms where utility tokens are used to purchase virtual items or exclusive content. These tokens generally have no direct financial value outside of the ecosystem for which they were developed.
Security Token – Digital Investments
Security tokens represent an asset such as shares or bonds. They are often subject to regulatory requirements since they are considered digital securities.
Example: A real estate company can issue security tokens, each representing a small fraction of a building. Investors can purchase these tokens, allowing them to benefit from rental income or potential value increases. Another example is a startup that uses security tokens to raise capital. Investors receive these tokens as digital shares and, depending on the model, can get dividends or voting rights.
Non-Fungible Token (NFTs) – Unique Digital Assets
A Non-Fungible Token (NFT) is a unique digital asset that is not interchangeable. While a coin or a standard token is interchangeable, a non-fungible token has individual characteristics.
Example: An artist can register their digital artworks as non-fungible tokens on a blockchain. Buyers acquire not only the file but also the clear proof of authenticity and ownership. In the gaming world, NFTs enable ownership of unique items like special weapons or characters that cannot be duplicated or replaced. NFTs are also gaining importance in the music industry, allowing fans to purchase exclusive content or limited editions directly from the artist.
What Are Tokens Used For?
Tokens have many different areas of application and are much more than just digital currencies. They enable innovative business models, simplify access to digital goods, and create new forms of participation in projects or companies.
As a Means of Payment Within Networks
Many tokens are used as currency within an ecosystem. They allow payments for services, products, or fees. A well-known example is tokens used within decentralized financial applications (DeFi).
For Managing Digital Assets
A token can represent a digital asset and thus document ownership. This feature is used, for example, in real estate or art markets. Investors can acquire and manage shares in real assets in the form of tokens.
Voting Rights and Governance
Some tokens offer voting rights, which are used in decentralized organizations. Users can use their tokens to vote on decisions within a project.
Bitcoin and Ethereum – Coins of Special Significance
Bitcoin and Ethereum are the best-known cryptocurrencies, but they differ in their functionality.
Bitcoin is the first digital coin and is used primarily as a store of value and means of payment. Many people want to buy Bitcoin to secure their capital over the long term.
Ethereum, in addition to functioning as a cryptocurrency, offers a platform for tokens and smart contracts. As a result, Ethereum is the foundation for numerous tokens and NFTs.
How Can You Buy and Use Tokens?
Anyone who wants to buy Bitcoin or invest in tokens has various options. Many platforms allow you to trade tokens or purchase coins such as Bitcoin, Ethereum, or Cardano.
When buying tokens, it is important to understand their function and purpose. Not every token grants the same rights or has the same value. Therefore, before making an investment, one should always carefully check how a token works.
