Token is a broad term in blockchain technology and is used to refer to any transferable asset that is present on the blockchain.
Tokens can be cryptocurrencies, digital artwork(NFT), in-game assets (Utility NFT), real-world assets(RWA), and many other things.
Fun Trivia:
- All coins are tokens because they are assets on the blockchain, however all tokens like NFTs are not coins.
- All cryptocurrencies are tokens but not all tokens are cryptocurrencies.
The process of converting an asset into a token is called “Tokenization.” This is done to make their transfers more efficient.
Types of Tokens
Fungible Tokens
- Non-native cryptocurrencies on other blockchains: When a cryptocurrency is bridged or transferred to another blockchain, it is referred to as a token on that secondary chain. For example, ETH is the native coin on the Ethereum blockchain, but if it is bridged to the Bitcoin blockchain, it becomes a token within that network because the native blockchain for ETH remains Ethereum.
- Multi-chain cryptocurrencies: Certain cryptocurrencies are designed to operate across multiple blockchains, often for enhanced interoperability and liquidity. Examples include USDT (Tether) and USDC (USD Coin), which can exist on various blockchains, such as Ethereum, Binance Smart Chain (BSC), and others. Even though they operate across several blockchains, they are considered tokens because they don’t have their own native blockchain infrastructure.
Non-Fungible Tokens
Non-Fungible Tokens are those tokens that are created unique and hold special value. These tokens can be anything from artwork, tickets, game assets, passes, reward coupons, and even ownership of real-life unqiue objects.
Some types of NFTs are: ERC 721, ERC 1155, etc.
Asset Tokens
Asset Tokenization refers to the representation of real world assets like cars, property, gold bullions, stocks, bonds and various other assets into a blockchain token for the sake of easy transfer.
This would help the asset:
- to become more liquid
- to be freely traded
- encourage efficient cross-border transfers
- allow fractional ownership
and many other benefits.
Soubound Tokens
Soulbound tokens are identifiers that help identify different wallets because once minted these tokens can never be deleted or removed from a wallet. Soulbound tokens have unique codes that help people identify them and subsequently identify their wallet.
A benefit of this is you can mark some wallets as trustable wallet so that your crypto is not stolen by a phishing attacker.
However, there is also a con. It ends the anonymity which is a core aspect of blockchain technology.
