When Bitcoin was first “invented” by Satoshi Nakamoto, no one could have predicted how far it would go. From just a few cents to over $2400, Bitcoin is the biggest and most well known cryptocurrency out there. However, as you dive deeper into the world of cryptocurrencies I’m sure that you’ll come across at least one Ethereum Token. In order to fully understand what a token is, we first need to briefly explain how Ethereum works.
What is Ethereum?
Like Bitcoin, Ethereum is a distributed blockchain network. One of the main differences is that Ethereum runs smart contracts which are basically applications that run exactly as programmed with no downtime, censorship, fraud or possible interference by a third party. One big problem with Bitcoin is that it’s blockchain only has a limited ability to process code. Rather than giving a set of limited operations, Ethereum allows developers to create whatever operations they want. This means developers can build thousands of different applications that go way beyond anything we have seen before.
What are Ethereum Tokens?
Great, you know what Ethereum is now, how does it help you understand what a token is? Since Ethereum’s blockchain came with the ability to process code, anyone with a little coding knowledge could use smart contracts to actually create their own cryptocurrencies using the Ethereum blockchain. These tokens can represent anything from a physical object to a native currency used to pay fees. Usually what you’ll see is a company create some piece of software or application that runs on a blockchain and then they create a currency to be used within that software. Then, in order to raise funds for the software/application, the company will run a crowd sale and offer some tokens in return for either usually Bitcoin or Ethereum.
Ethereum vs. Ethereum Tokens
A Few Examples of Ethereum Tokens
Ethereum offers a token called Ether, this is the coin you may hear a lot about right now since it’s climbing fast! They raised whopping $18,000,000 during their presale back in 2014. Ether is used to execute smart contracts and can now be used as an incentive for software developers because of it’s high value.
Golem is a project that allows people to rent computing power to others. They issued a token called Golem Network Token (GNT) which is used as a payment for computing power and they are also used for interacting with the Golem network.
Civic is a “secure identity platform” that hopes to eventually wipe the need for usernames and passwords while still providing multi-factor authentication by using the blockchain and biometrics. They issued a token called Civic (CVC) and it will be used for purchasing upgrades and interacting with the civic network.
The Bottom Line
Nowadays, new companies are issuing new tokens like crazy. If you are going to invest early, look out for the company’s ICO (Initial Coin Offering). That’s when the tokens will be the cheapest. Be warned though, some cold hearted people out there will setup scam ICO’s and take your money. Do your research before investing, we’ll have a guide pretty soon that will help you out with ICO’s, so stay tuned for that.
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