What is a Token on Ethereum?
A token on the Ethereum blockchain is a digital asset created and managed on the Ethereum network using smart contracts. Tokens are built using Ethereum’s ERC-20, ERC-721, or other token standards, which define the functionality and rules for how tokens can be transferred and interacted with.
The most common type of token on Ethereum is the ERC-20 token, which is fungible, meaning each token is interchangeable with another token of the same type. These are often used for various applications, including decentralized finance (DeFi), initial coin offerings (ICOs), and gaming. Examples of well-known ERC-20 tokens include Chainlink (LINK), Uniswap (UNI), and Tether (USDT).
In contrast, ERC-721 tokens are non-fungible tokens (NFTs), which represent unique items or assets, providing ownership verification and provenance. NFTs have gained popularity in art, collectibles, and gaming. They allow for the creation and exchange of one-of-a-kind items on the blockchain.
The creation of tokens is facilitated by smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. As a result, token transactions can be conducted without the need for intermediaries. This programmability enables innovations in various sectors, enhancing the utility and flexibility of tokens beyond simple currency.
Overall, tokens on Ethereum have transformed the landscape of blockchain applications, driving growth in decentralization and financial innovation.