Glossary

Token

Plain-language definition Crypto glossary

Key takeaways

A token is a digital asset created and managed by a smart contract on an existing blockchain, rather than running on its own dedicated network.
Because a token relies on its host chain for security and settlement, it differs from a coin like Bitcoin or ether, which is native to its own blockchain.
Tokens are easy to issue by deploying a contract, so thousands can exist on one platform and their quality and purpose vary enormously.

Definition

A token is a digital asset created and managed by a smart contract on an existing blockchain, rather than by its own dedicated network. Tokens rely on the host chain for security and settlement.

How it works

A token is defined by a smart contract that tracks balances and transfers according to a shared standard, such as Ethereum’s ERC-20 for interchangeable tokens. This is the key distinction from a coin like Bitcoin or ether, which is native to its own blockchain. Because issuing a token only requires deploying a contract, thousands can exist on a single platform.

Why it matters

Tokens power most of the activity in DeFi, governance and NFTs, and they let projects launch an asset without building a blockchain from scratch. The flip side is that creating one is easy, so the quality and purpose of tokens varies enormously — which is what tokenomics analysis tries to assess.

Example

A governance token lets holders vote on a protocol’s decisions; a stablecoin is a token engineered to track a currency.

FAQ

Frequently asked questions

What is the difference between a token and a coin?

A coin is native to its own blockchain, like Bitcoin or ether, and the network secures it directly. A token is created by a smart contract on an existing blockchain and relies on that host chain for security and settlement rather than having a network of its own.

What is an ERC-20 token?

ERC-20 is a shared standard on Ethereum that defines how interchangeable tokens track balances and transfers. Following a common standard lets tokens work consistently across wallets and applications on the same platform.

Are all tokens worth investing in?

No, and this is not financial advice. Because issuing a token only requires deploying a contract, they are easy to create and their quality and purpose vary enormously, which is exactly what tokenomics analysis tries to assess before forming any view.