What is a token? Types, pros and cons

As information technology develops, online transactions are becoming more common and are used in almost every field. So What is a token? How do tokens work? Read on with Mona Media to find out everything about tokens!

What is a token?

What is a token?

Digital signature or electronic signature is another name for a token, which is encoded into numbers on a dedicated device. The token code generated is a kind of OTP, meaning a one-time code generated at random for each transaction. Many businesses now use tokens for their transactions, especially online ones. Put simply, a token is like a special password you must enter on each transaction to protect your information. A token code has the legal value of a signature. When a token confirms a transaction, businesses get accuracy and strong security. Once you confirm with a token code, it is the same as signing the transaction contract, with no extra paperwork needed.

Types of tokens

Tokens today fall into 2 main types: hard tokens and soft tokens. Specifically:

• Hard Token: A small device, like a USB stick, that you can carry anywhere. For each online transaction, you need this device with you to get the confirmation code.
• Soft Token: A piece of software installed on a computer, phone or tablet. For each online transaction, the software gives the user a token code very quickly.

Tokens are widely used in fields with frequent online financial transactions, such as banking, Facebook, tax authorities and e-commerce sites…

Key features of tokens

A token is seen as a kind of digital asset and is recognized like a legally valid signature. The 2 most notable features of tokens today are Utility Token and Security Token. Specifically:

• Utility Token: This is a utility token. Its role is to serve a project based on specific goals and operating functions. This type of token has a few main functions, such as payments, voting or discounts,…

• Security Token: This works much like an electronic share in the stock market. Based on the shares they hold, users receive dividends. This type of token also lets users vote or take part in deciding certain matters.

How tokens work

Secure, strict and fast are the words that best describe how a token works. When users want to log in to online services at an e-wallet or internet banking,… they must confirm the transaction with a token OTP code, and that code is generated by the token system itself. Users must enter the PIN they set up beforehand to get the OTP code from the token device. For OTP codes sent by SMS or the Smart Token app, users have to pay a small fee to receive the code that confirms a financial transaction.

Pros and cons of using a token

Tokens are very widely used across industries and online transactions because of some notable advantages, such as:

• Tokens are highly secure and extremely safe. Only the account owner can see the OTP code.
• Tokens are not controlled or managed by any third party and work independently.
• A token code is only valid once the account owner confirms it.
• Token devices are compact and easy to carry around, and they work reliably.
• They save time and make online transactions faster, easier and more secure.

Alongside the advantages, tokens also have some drawbacks:

• A token OTP code is usually valid only briefly, around 1 – 2 minutes per code. So as soon as the code arrives, the user needs to enter it right away.
• If users forget or lose their token device, it seriously disrupts their online transactions.

The difference between a token and a coin

A token is a virtual currency that runs on the platform of another virtual currency, such as NXT, Ethereum and NEO. A coin, by contrast, is a virtual currency that can operate independently on its own. Many people confuse tokens and coins, but the two are quite different:

• Function: A coin is used as a currency, or as a unit that stores real value so you can carry out many kinds of transactions. A token has a wider range of uses: it is also the fuel that powers many networks and the unit of exchange for some applications.
• Technology: A coin works like its own storage wallet, with transaction fees deducted directly from that coin. A token is stored in the same kind of wallet, but it is built specifically for its parent platform.
• Security: Using tokens is much safer and better for data security than using coins, because tokens run on a solidly built, large-scale platform. That helps users stay clear of unwanted attacks.

Token use in banking

One of the most common fields for tokens today is finance and banking. There, token devices and token codes play a critical role, because most banking transactions are online. To keep customer information from being stolen, or to make sure a transaction can't succeed even if it is, an OTP code is required. Banks usually supply OTP codes by SMS or through a token device they issue. Each bank token device is tied to one bank account, and you set a PIN for it, which adds another layer of protection. When you make an online transaction, such as shopping or paying a bill, the token device generates a transaction confirmation code. You press the device to get the code, then enter it in the last step of the process for the transaction to go through. That is everything we have on What is a token? how tokens work and how to tell a token from a coin. We hope this article helps you understand what a token is and the benefits it brings.