What is a Token?
A token is essentially a digital asset of a cryptocurrency that has a certain value and are used for investments or for some other purposes on the blockchain. A crypto token provides incentives to its holders.
Types of Tokens
Crypto tokens can be classified according to its structure and usage.
The Structure of Tokens can be classified into:
Layer 1 Tokens
These types of tokens are native to a particular blockchain and are used to power all of the services in the blockchain. The BNB on Binance Smart Chain is an example of the Layer I token in cryptocurrencies. Ether or ETH on the Ethereum network is another well-known example of a Layer 1 token in cryptocurrencies.
Layer 2 Tokens
These types of tokens have a distinct representation. They’re utilized in the case of decentralized applications in a specific network. Optimism, for example, are classified as Layer 2 tokens since they are built on top of Layer 1s, in this case the Ethereum chain network.