What is a Token?

Tokens are created on existing blockchains. In fact, the most common blockchain token platform is Ethereum due to the creation and simplification of smart contracts. Tokens built on the Ethereum platform are called ERC-20 tokens.

However, there are others such as NEO, Waves, Lisk and Stratis. As mentioned above, the tokens on the Ethereum platform are called ERC-20 tokens, while the tokens used by NEO are called NEP-5 tokens.

Anyone can make their own custom token on one of these platforms.

How Tokens are Created

In fact, it requires very little technical ability. Not recommended for complete newbies, but for someone with some programming experience, it might not be that difficult. However, it does require developers to spend some native coins on the blockchain where the tokens are created.

For example, if a token is created on Ethereum, the creator will need to spend some ether in order for the network’s miners to verify the token transaction (creation).

Purpose

Fees are paid for all token transactions on the blockchain, not just token creation. Therefore, any application built on Ethereum must use Ethereum to transfer application-specific tokens from one user to another, or between the application and that user.

This is the same way that a coin transaction needs to pay a fee to someone keeping the network secure.

Most tokens can be used with decentralized applications or dApps. When developers create tokens, they can decide how many units to make and where to send those new tokens when they are created. They will pay some native cryptocurrency on the blockchain where the token was created at this time.

After a token is created, the token is typically used to activate the application functionality for which it was designed.

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