What is a Token?
A token is a virtual currency or asset. Like traditional currencies and assets such as gold, tokens can be bought, sold and traded. Unlike the dollar or gold, however, tokens do not have a physical form.
Instead, a token is really nothing more than a long string of numbers that is owned by a wallet address (which is another long string of numbers and letters). This relationship is recorded in a digital database known as a blockchain.
So when you trade tokens or NFTs, you’re basically just moving this number to different addresses.
While this may sound scary, this is exactly how most banks work today (over 90% of money exists only online).
Tokens Live on Smart Contract Platforms
Tokens are created by and operate on a special type of computer known as a smart contract platform. These networks are responsible for creating, storing, authenticating, transferring and standardizing tokens:
Creation: NFTs are created with a smart contract which assigns each asset an owner, description and unique ID number
Storage: Tokens are stored on a smart contract platform’s native blockchain
Authentication: Ownership is verified through digital key cryptography
Trading: Transactions are executed by the platform’s miners
Standards: Smart contract platforms create the rules that allow tokens to function seamlessly across multiple protocols
(If this seems like a lot, don’t worry, we’ll explain more below)
In exchange for performing these services, token holders pay a fee to the smart contract platform. For example, if you wanted to trade your NFT on Ethereum, you would need to spend ETH, the platform’s native coin.
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