A Token is a blockchain-issued digital asset that signifies different kinds of value, including currency, ownership rights, or utility on a platform. Tokens are essential in DeFi, NFTs, and governance structures, enabling asset transfers, voting, and participation in decentralized applications.
The design and use case of the tokens determines their purpose. Currency tokens are used as a medium of exchange on blockchain networks, for example. Bitcoin (BTC) and Ether (ETH) are used for payments, transaction fees, and other things.
Holders of utility tokens have access to certain features or services on a platform. For example, a Basic Attention Token (BAT) is used in the Brave browser ecosystem to pay its users to read adverts and for advertisers to purchase that space. This ecosystem is created by these tokens and allows users and service providers to interact seamlessly.
Governance tokens allow holders to vote in the decision-making process of blockchain-based projects. In DAOs (Decentralized Autonomous Organizations) and DeFi (Decentralized Finance) platforms, these tokens are what powers users to vote on proposals, allocate resources, and steer the course of a project. Tokens help create a decentralized, community-driven approach by distributing governance power.
Non Fungible Tokens (NFTs) are another category, which are unique digital assets such as artwork, collectibles, and in-game items. Unlike fungible tokens, NFTs are not interchangeable and are unique, with additional metadata that is encoded to make them functional.