Token

What is a token in simple words

A token is a unique digital code, an analogue of an electronic key or virtual certificate. It confirms the owner's rights, opens access to something (for example, a website) or serves as a unit of accounting.

In the world of cryptocurrencies, a token is a digital asset created on the basis of an existing blockchain (most often on Ethereum using the ERC-20 or ERC-721 standards). Unlike coins (Bitcoin, Ethereum), tokens do not have their own network — they work on top of existing platforms.

According to analytical companies, the number of different tokens in the world already exceeds several million, and this market continues to grow actively. Tokens are used in decentralized finance (DeFi), game projects, management systems and many other areas. Read about how tokens are related to the blockchain in the article Cryptocurrency.

Main types of tokens

1. Utility tokens

Give access to certain services or products within a project's ecosystem. For example, a token can be used to pay fees, access premium features or vote in decentralized autonomous organizations (DAOs). This is the most common type of token.

2. Security tokens (investment tokens)

Represent a digital analogue of shares or bonds. They give the right to a share in a company, receive dividends or a share in the project's profit. Security tokens are regulated by securities legislation and undergo a registration procedure.

3. Governance tokens

Give the right to vote in the management of decentralized protocols. Owners of such tokens can participate in decisions about the project's development, allocation of funds and parameter changes. Read about how management in DeFi projects works in the article Cryptocurrency.

4. NFT (Non-Fungible Tokens)

Unique tokens that cannot be exchanged for others one-to-one (unlike bitcoin or ether). Each NFT is unique and confirms ownership of a specific object — digital art, collectible items, game items or even real estate in metaverses.

5. Stable tokens (stablecoins)

Tokens whose price is pegged to a fiat currency (usually the US dollar) or other stable assets. The most popular examples are USDT (Tether) and USDC. They are used for storing value and making transactions without volatility. Read about how stablecoins work in the article Cryptocurrency.

Where tokens are used

1. Decentralized finance (DeFi)

Tokens are at the core of the entire DeFi ecosystem. They are used for lending, loans, staking, farming and trading on decentralized exchanges (DEXs). For example, the UNI tokens from Uniswap or AAVE from Aave give the right to manage these protocols.

2. Game projects and metaverses

In game projects, tokens perform the functions of in-game currency. Players can earn tokens for victories, buy in-game items and exchange them for real money. In metaverses, tokens are used to buy virtual land, avatar clothes and other assets.

3. Fundraising (ICO, IDO, IEO)

Tokens are used to attract investments in new projects. Companies issue tokens and sell them to investors at early stages. If the project is successful, the token price grows and investors receive profit. Read about how funds are raised through tokens in the article Bitcoin.

4. Digital identification

Tokens can be used to confirm identity, access rights or certification. For example, NFT diplomas or identity cards on the blockchain.

How a token differs from a coin

• Coin: Has its own blockchain (Bitcoin, Ethereum, Solana). Used as the main currency of the network for paying transaction fees (gas).
• Token: Does not have its own blockchain, is created on the basis of someone else's (most often Ethereum). It is not used for paying gas in the network. Can perform any other functions — from currency to management.

In simple terms: a coin has its own blockchain, a token does not. A coin is like your own country with its own currency. A token is like special coupons or tickets inside that country. Read about how coins work in the article Bitcoin.