What Is a Token in Crypto? A Beginner’s Guide

What Is a Token?

A token is a type of digital asset that exists on a blockchain. It represents something of value — it could be a currency, a stake in a project, access to a service, or even a digital collectible.

Tokens are not standalone blockchains. Instead, they are built on top of existing blockchains, using their infrastructure. For example:

• USDT (Tether) is a token built on Ethereum.
• UNI (Uniswap) is also an Ethereum-based token.
• SOLAPE is a token built on the Solana blockchain.

Tokens can serve many purposes — from powering apps to rewarding users. Think of tokens as digital “credits” inside a specific ecosystem.

Token vs Coin: What’s the Difference?

People often confuse tokens and coins, but there’s a simple way to tell them apart.

Coins:

• Are native to their own blockchain.
• Used primarily as money or a means of exchange.
• Examples: Bitcoin (BTC), Ethereum (ETH), Solana (SOL)

Tokens:

• Are built on existing blockchains.
• Represent specific use cases, like voting, staking, rewards, or services.
• Examples: Chainlink (LINK), Shiba Inu (SHIB), AAVE, MATIC (on Ethereum)

In short: All coins are tokens, but not all tokens are coins.
If it runs on its own blockchain, it’s a coin.
If it runs on someone else’s blockchain, it’s a token.

Types of Tokens

Let’s explore some of the common types of tokens in crypto:

1. Utility Tokens
   These tokens give access to products or services within a blockchain-based project.

   • Example: BNB lets users pay fees on a crypto exchange.

2. Governance Tokens
   These allow holders to vote on decisions in a decentralised protocol.

   • Example: UNI holders vote on how Uniswap works.

3. Security Tokens
   These represent ownership in an asset or company — kind of like digital stocks.

4. Stablecoins
   Technically tokens, stablecoins like USDC or USDT are pegged to the value of fiat currencies like the dollar.

5. Meme Tokens
   These are built around viral communities or internet culture. They’re fun, but risky.

   • Example: PEPE, FLOKI

How Are Tokens Created?

Tokens are created through smart contracts — self-executing code written on a blockchain like Ethereum or Solana.

For example, the Ethereum blockchain uses a standard called ERC-20 to create tokens. This makes it easy for wallets, exchanges, and apps to interact with them.

Anyone can technically create a token — but getting people to trust and use it is a different story.

Why Tokens Matter

Tokens are the lifeblood of the decentralised web. They:

• Power apps and platforms
• Reward users for activity
• Incentivise growth and adoption
• Allow for decentralised decision-making
• Let people raise money through token sales

In other words, tokens aren’t just digital money — they’re programmable assets that unlock new ways of building and using technology.

FAQs

1. What’s the main difference between a token and a coin?
Coins are native to their own blockchains, like Bitcoin or Ethereum. Tokens are built on top of existing blockchains.

2. Do tokens have real-world value?
Yes, many tokens can be traded, used for services, or exchanged for other assets. Their value depends on utility, demand, and market trends.

3. Can anyone create a token?
Yes. With the right tools, anyone can deploy a token on blockchains like Ethereum or Solana. But success depends on adoption and trust.

4. Are tokens safe to invest in?
Some are, but many are speculative. Always do your own research and avoid investing more than you’re willing to lose.

5. How can I buy a token?
Tokens are available on crypto exchanges. You’ll typically need to use a wallet and hold some native coins (like ETH) to make the purchase.