A token is a digital asset that represents a certain stored value. It can be used to represent a variety of things, such as assets, voting rights, or even a proof of membership in a particular organization.
Let’s understand this with a small theme park analogy here;
Imagine you’re at a theme park, and you want to go on all the rides. But instead of paying for each ride separately, you can buy tokens at the entrance that can be used as “digital tickets” to ride any attraction you want. These tokens represent stored value that can be exchanged for access to the theme park’s services.
Now, let’s say the theme park decides to expand and build a new water park. They could create a new type of token that gives holders exclusive access to the water park. These tokens would be utility tokens, because they provide access to a specific product or service.
On the other hand, let’s say that the theme park is looking to raise money to build a new rollercoaster. They could issue security tokens that represent ownership in the rollercoaster project. These tokens would be securities, because they represent a financial stake in an asset.
So, in a way, tokens are like digital coupons or tickets that can be used to access a variety of goods and services, depending on what they are designed to do.
On blockchain, tokens serves similar purpose depending upon the their vast utilities.
Tokens are often built on top of existing blockchain platforms, such as Ethereum, and can be bought, sold, and traded like other assets.