The word “token” is one of the most commonly used terms in the cryptocurrency world. Whether you're reading about Bitcoin, decentralized finance, NFTs, or blockchain games, you will almost always see references to “tokens.” But what does the word actually mean?

While “token” can refer to any cryptoasset, the term has evolved to include more specific meanings depending on the context. Understanding these meanings helps investors navigate the crypto ecosystem with more confidence.

What is a token?

A token is a type of digital asset created and stored on a blockchain. It can be traded, transferred, or held just like any cryptocurrency. However, the term has also taken on more specific meanings:

1. Tokens often refer to all cryptocurrencies except Bitcoin and Ethereum (even though technically BTC and ETH are also tokens).

2. Tokens also describe cryptoassets built on another blockchain, such as DeFi tokens created on Ethereum or Solana.

In simple terms:

All tokens are cryptocurrencies, but not all cryptocurrencies are tokens in the same way.

Token vs Cryptocurrency

While people use the terms interchangeably, there’s a subtle difference:

• Cryptocurrency = digital currency used for payments or store of value

• Token = any digital asset on a blockchain that may serve additional functions beyond payments

Examples:

• Bitcoin is a cryptocurrency and a coin.

• Chainlink (LINK) is a token that runs on Ethereum.

Token vs Coin

Understanding this difference is crucial:

A coin is like a country’s native currency.
A token is like a digital asset created inside that country.

Two Common Meanings of “Token” in Crypto

1. Tokens as All Cryptocurrencies Except Bitcoin and Ethereum

Since BTC and ETH dominate the market, many people use “token” to describe all the other digital assets — also called altcoins.

Examples:

• Solana (SOL)

• Cardano (ADA)

• Polygon (MATIC)

• XRP

These are “tokens” in the general sense.

2. Tokens Built on Existing Blockchains

This usage is more technical.

These tokens do not have their own blockchain. Instead, they rely on the blockchain of another cryptocurrency.

Examples:

• Chainlink (LINK) – runs on Ethereum

• Aave (AAVE) – runs on Ethereum

• Uniswap (UNI) – runs on Ethereum

• USDT – issued on several blockchains

These are often referred to as ERC-20 tokens, BEP-20 tokens, or similar standards.

Types of Tokens in Cryptocurrency

Crypto tokens come in many categories. Here are the most important ones:

1. DeFi Tokens

Decentralized finance (DeFi) tokens power apps that mimic banking functions such as:

• Lending

• Borrowing

• Trading

• Earning interest

Examples:

• AAVE

• UNI

• COMP

These tokens may offer rewards or platform functionality.

2. Governance Tokens

These tokens allow holders to vote on how a protocol evolves.

Example:

• COMP — gives users voting power in the Compound protocol

• UNI — lets holders influence Uniswap decisions

The more tokens you hold, the more voting power you have.

3. Non-Fungible Tokens (NFTs)

NFTs represent unique digital assets like:

• Artwork

• Game items

• Collectibles

• Virtual real estate

They cannot be swapped 1:1 like cryptocurrencies because each NFT has its own identity.

4. Security Tokens

Security tokens represent ownership in a real-world asset such as:

• Stocks

• Bonds

• Real estate

• Company shares

They are regulated more like traditional securities and allow tokenized investing.

5. Utility Tokens

Utility tokens give holders access to specific services or features, such as:

• In-game currency

• Subscription access

• Voting rights

• Discounts or rewards

Example: BNB, used for discounts and services on Binance.

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Why Are Tokens Important?

Tokens serve as the building blocks of Web3.

Here’s why they matter:

1. They power decentralized applications (dApps)

Tokens enable DeFi protocols, decentralized exchanges, and blockchain games.

2. They allow digital ownership

NFTs make digital art and collectibles verifiable and scarce.

3. They support community-driven governance

Governance tokens give users the power to vote on project decisions.

4. They enable new business models

Tokenization opens doors for fractional ownership, digital identities, and more.

How Tokens Work on Blockchains

Tokens exist through smart contracts, which define rules for:

• Ownership

• Transfers

• Supply

• Utility

For example:

• ERC-20 is the standard for fungible tokens on Ethereum

• ERC-721 is the standard for NFTs

• BEP-20 runs on Binance Smart Chain

These standards ensure tokens are compatible with wallets, exchanges, and dApps.

Real-World Examples of Popular Tokens

• Chainlink (LINK) – oracle service token

• Aave (AAVE) – DeFi lending protocol token

• Uniswap (UNI) – decentralized exchange token

• Tether (USDT) – stablecoin

• NFTs like Bored Apes – unique digital collectibles

Each token serves a unique purpose in the digital ecosystem.

Risks and Limitations of Tokens

While tokens offer benefits, they also come with risks:

1. Volatility

Token values can swing dramatically.

2. Scams & Rug Pulls

Bad actors can create worthless tokens.

3. Inflationary Supply

Some tokens continuously mint new supply, reducing value.

4. Regulatory Uncertainty

Some tokens may fall under securities laws.

Investors should always research tokenomics before investing.

Understanding what a token is is essential for navigating the world of cryptocurrency. Tokens power decentralized apps, represent digital ownership, enable community governance, and drive innovation across Web3. Whether you're exploring DeFi, NFTs, or blockchain games, tokens play a central role in shaping the future of digital assets.