HBC Blockchain 101 – Part 18: An explanation of the three basic token types

Demystifying Tokens on the Blockchain: Beyond Coins and Collectibles

In this video, Keir Finlow-Bates delves into the world of blockchain tokens, moving beyond the simplistic notion of digital coins or collectibles to explore their diverse nature and potential applications.

Breaking Down the Blockchain Concept

Finlow-Bates begins by emphasizing the fundamental concept of blockchains as ledgers, akin to digital spreadsheets. These ledgers serve a specific purpose: to record ownership and transfer history. This is crucial to understanding how tokens function on the blockchain.

Tokens: Rows in the Blockchain Ledger

A ‘token’, in the context of blockchains, represents a row in this digital ledger. Each row contains information about the ownership and transfer history of a specific asset.

The Three Main Token Types

The video explores three primary categories of tokens:

1. Native Cryptocurrency:

   Native cryptocurrencies are the fundamental tokens of a particular blockchain. They are directly managed and tracked by the blockchain itself, forming the backbone of its economy. Examples include Bitcoin for the Bitcoin blockchain and Ether for Ethereum.

2. Fungible Tokens (ERC20):

   Fungible tokens are interchangeable units, similar to dollar bills. They are often used for stablecoins, which represent real-world currencies like USD or EUR. These tokens are typically created using the ERC20 standard on the Ethereum blockchain.

3. Non-Fungible Tokens (NFTs):

   NFTs stand out as unique, non-interchangeable tokens. Unlike fungible tokens, each NFT represents a distinct asset, often associated with digital art or collectibles. They are also managed by smart contracts on the blockchain.

Understanding NFTs: Beyond Digital Collectibles

Finlow-Bates highlights that NFTs extend beyond mere collectibles. They can act as access keys to various resources or services, enabling secure authentication and ownership verification.

Conclusion

The video concludes by emphasizing the importance of understanding tokens as ledger entries to grasp their true nature. Tokens, particularly NFTs, hold immense potential beyond traditional digital collectibles, enabling new forms of ownership, access control, and value creation in the blockchain ecosystem.