What is a token in crypto?
In one line: A token is a crypto asset created on top of an existing blockchain, using a smart contract, rather than having its own blockchain.
Token vs coin
A coin is the native money of its own Blockchain. Bitcoin is the coin of the Bitcoin network. Ether is the coin of Ethereum. You pay network fees in it.
A token lives on top of a blockchain that already exists. It's made by a Smart contract. Thousands of tokens run on Ethereum, Solana and other networks.
In everyday talk, people mix the two words. The difference still helps when you're checking what you're buying.
Kinds of token
- Stablecoins: tokens meant to track a currency, like USDC tracking the US dollar. See Stablecoin.
- Governance tokens: give holders a vote on how an app is run, like UNI for Uniswap.
- Utility tokens: used to pay for something inside an app or network.
- Memecoins: tokens built on a joke or a trend, with little or no use. See Memecoin.
- NFTs: one-of-a-kind tokens. See NFT.
A simple example
Anyone can create a token in minutes. They pick a name, a symbol and a supply, say 1 billion units, and deploy the contract. It now exists, and it has no value until people trade it.
That's why a new token's name means nothing on its own. A token called "Bitcoin 2" isn't Bitcoin.
A common mistake
Buying a token from a name, not an address. Copycat tokens use the same name and logo as real ones. The only reliable ID is the contract address, checked on the project's own official site.
Before buying any token, check: who controls the supply, whether the team can mint more, how much trading volume it really has, and how easy it is to sell. Many new tokens lose nearly all their value.
More in how to spot a rug pull.
Questions
Is a token the same as a cryptocurrency?
It's one kind. "Cryptocurrency" covers both coins with their own blockchains and tokens built on top of others.
Can I lose money on a token?
Yes. Token prices can fall to near zero, and some tokens can't be sold at all because of how their contract is written.
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