Crypto tokens represent a particular fungible and tradable asset or a utility that is often found on a blockchain.
Breaking Down Crypto Token
Terms like cryptocurrency, altcoins, and crypto tokens are often erroneously used interchangeably in the virtual currency world.
Technically, they are all different terms. Cryptocurrency is the superset, and altcoins and crypto tokens are its two subset categories.
A cryptocurrency is a standard currency which is used for the sole purpose of making or receiving payments on the blockchain. For instance, the most popular cryptocurrency is Bitcoin.
Altcoins are the various alternative cryptocurrencies that were launched after the massive success achieved by Bitcoin. The term means alternative coins—that is—other than bitcoins. They were launched as enhanced substitutes of bitcoin with the claims to overcome some or the other pain points of bitcoin. Litecoin, Bitcoin Cash, Namecoin, and Dogecoin are common examples of altcoins. Though each has tasted varying levels of success, none of them have managed to gain popularity akin to bitcoin.
Crypto tokens are special kind of virtual currency tokens that reside on their own blockchains and represent an asset or utility. For example, one can have a crypto token that represents x number of customer loyalty points on a blockchain that is used to manage such details for a retail chain. There can be another crypto token that gives entitlement to the token holder to view 10 hours of streaming content on a video-sharing blockchain. For example, another crypto token that may even represent other cryptocurrency, like one such token being equal to 15 bitcoins on a particular blockchain. Such crypto tokens are tradable and transferrable among the various participants of the blockchain.
Such crypto tokens often serve as the transaction units on the blockchains that are created using the standard templates like that of Ethereum network that allows a user to create their own tokens. Such blockchains work on the concept of smart contracts or decentralized applications, where the programmable, self-executing code is used to process and manage the various transactions occurring on the blockchain.
In essence, the cryptocurrencies and altcoins are specific virtual currencies that have their own dedicated blockchains and are primarily used as a medium for digital payments. On the other hand, the crypto tokens operate on top of a blockchain that acts as a medium for creation and execution of decentralized apps and smart contracts, and the tokens are used to facilitate the transactions.
Such crypto tokens are usually created, distributed, sold, and circulated through the standard initial coin offering (ICO) process that involves a crowdfunding exercise to fund project development. investopedia.com