What is a token in cryptocurrency?
Technically, “token” is just another word for “cryptocurrency” or “cryptoasset.” But increasingly it has taken on a couple of more specific meanings depending on context. The first is to describe all cryptocurrencies besides Bitcoin and Ethereum (even though they are technically also tokens). The second is to describe certain digital assets that run on top of another cryptocurrencies’ blockchain, as many decentralized finance (or DeFi) tokens do. Tokens have a huge range of potential functions, from helping make decentralized exchanges possible to selling rare items in video games. But they can all be traded or held like any other cryptocurrency.
“Token” is a word that you hear a lot in cryptocurrency. In fact, you might hear Bitcoin described as a “crypto token” or something similar, because — technically — all cryptoassets can also be described as tokens. But the word has increasingly taken on two specific meanings that are common enough that there’s a good chance you’ll encounter them.
- A “token” often refers to any cryptocurrency besides Bitcoin and Ethereum (even though they are also technically tokens). Because Bitcoin and Ethereum are by far the biggest two cryptocurrencies, it’s useful to have a word to describe the universe of other coins. (Another word you might hear with virtually the same meaning is “altcoin.”)
- The other increasingly common meaning for “token” has an even more specific connotation, which is to describe cryptoassets that run on top of another cryptocurrency’s blockchain. You’ll encounter this usage if you become interested in decentralized finance (or DeFi). While a cryptocurrency like Bitcoin has its own dedicated blockchain, DeFi tokens like Chainlink and Aave run on top of, or leverage, an existing blockchain, most commonly Ethereum’s.
- Tokens in this second category help decentralized applications to do everything from automate interest rates to sell virtual real estate. But they can also be held or traded like any other cryptocurrency.
ERC-1155 is a new standard for representing virtual items on the Ethereum blockchain that allows the creation of multiple types of tokens in the same contract. It is particularly useful for items used in games, many of which will come in numbers. In The Sandbox, a user-generated content platform that utilizes blockchain technology, it allows Creators to mint any number of copies of the same Items/Assets.
Types of Tokens
There are several benefits to the ERC-1155 approach in comparison to other token standards like ERC-20 and ERC-721. It allows developers to consolidate the logic in one contract and build an ecosystem around one single address. It also allows batch transfers to operate in the confines of the same contract — and all of this can be accomplished at a reduced gas cost.
This feature is important for us, as we want our creators to be able to create both NFTs (via ERC-721) that can work with the existing ecosystem and fungible tokens (via ERC-1155) that offer them the ability to mint a collection of items they can sell for use in various gaming experiences.
Another important requirement for us was the ability to provide true ownership guarantee to our users without costing too much gas. While many blockchain games provide only ownership of a number to save on gas, we provide a proof of ownership of the asset’s data itself (graphical representation and any other other properties attached to it) by storing its hash in the smart contract while the data itself resides on IPFS. And thanks to the design of ERC-1155, our latest implementation allows creators to mint more than 1,500 types of assets at once in one block.
NFT function as non-fungible token that cannot be replaced because they are unique.
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