What is a crypto token?
What Is a Crypto Token?
A crypto token is a digital asset that runs on top of another blockchain. Unlike a native coin (like Bitcoin or ETH), a token does not have its own separate blockchain. It is created and managed by a smart contract on a host chain, such as Ethereum. Tokens can represent value, rights, or access to a product or service.
How Tokens Are Created
Developers write a smart contract that defines the token's rules: supply, name, and how it can be transferred. Standards like ERC-20 on Ethereum make tokens interoperable: wallets and exchanges can support any ERC-20 token. When you "receive" a token, your wallet address is credited with a balance in that contract.
Common Uses
- Utility: Used within an app or platform (e.g. governance, fees, rewards).
- Governance: Holders vote on protocol changes.
- Stablecoins: Tokens pegged to fiat (e.g. USDT on Ethereum).
- NFTs: Unique tokens representing ownership of digital or real-world items.
Tokens vs Coins
Coins (e.g. BTC, ETH) are the native currency of their own blockchain. Tokens depend on another chain for security and execution. Both can be traded and held. When you buy a token, you still need the host chain's coin (e.g. ETH) to pay gas fees for moving or swapping it.
