A crypto asset can be a coin or a token. While coins, such as Bitcoin (BTC) or Ethereum (ETH), operate on their blockchains, tokens are digital assets issued on existing blockchain networks.
So, what is a crypto token? It’s any blockchain-based asset created via a protocol’s token standard, used to represent value, rights, or unique items without requiring the creation of a new ledger.
Coins are the native digital currency of a blockchain, used to pay transaction fees, secure the network through mining or staking, and serve as a medium of exchange and store of value within that ecosystem.
Tokens are assets created and managed by smart contracts on an existing blockchain, leveraging its security and infrastructure to represent a range of assets, including utility or governance rights, unique collectibles, and stablecoins.
Token Standards
Each layer 1 blockchain defines how to create and manage tokens:
Ethereum (ERC‑20, ERC‑721, ERC‑1155): The original standards for fungible tokens and NFTs.
Binance Smart Chain (BEP‑20): Mirrors ERC‑20 for high‑volume issuance.
Solana (SPL): Supports both standard tokens and NFTs at scale.
Cardano (Native Tokens): Token issuance is built into the protocol, enabling the minting and transfer of multiple assets without the need for separate smart contracts.
These standards ensure any crypto token can be recognized, transferred, and displayed by wallets and dApps.
Core Token Types
Utility Tokens
A utility token grants access to a service or feature within a protocol.
Example: A decentralized storage network requires its native token to facilitate uploading and retrieving files.
Governance Tokens
Holders of governance tokens vote on protocol upgrades, fee structures, and treasury management.
Example: A DeFi platform issues tokens that let users approve changes to interest rates.
Non‑Fungible Tokens (NFTs)
Unique tokens representing digital or physical items like artwork, collectibles, documents, licences, and other real‑world assets.
Example: An NFT might grant ownership of a limited-edition digital artwork or a fractional share in a real estate asset.
Stablecoins & Asset‑Backed Tokens
Tokens pegged to fiat currencies or commodities, or representing shares in regulated assets.
Example: A stablecoin maintains a 1:1 value with the U.S. dollar for on‑chain trading and payments.
Why Tokenomics Matters
Evaluating what a crypto token is involves four key factors:
Supply Mechanics
Check how tokens enter or leave the system. A fixed cap ensures scarcity, while inflationary issuance funds network growth; however, it can dilute holdings. Conversely, deflationary burns remove tokens to support price stability.Use Cases
Identify the token’s role: a utility token grants access to services, a governance token lets holders vote on protocol decisions, and an NFT represents a unique digital or physical item with collectible value.Demand Drivers
Look for built-in incentives, such as staking rewards, which leverage owned tokens to secure the network, and fee models that require tokens for transactions or premium features.Interoperability
Tokens that follow common standards (such as ERC-20) and work across wallets, exchanges, and bridges enjoy broader liquidity and usage, allowing users to move and utilize them across multiple platforms with ease.
A well‑designed token aligns its technical standard with clear utility and sustainable economic incentives.
By understanding the distinction between coins and tokens, the role of token standards, and the variety of token types, from utility tokens to NFTs, you’ll navigate the crypto asset landscape with confidence. Whether you’re building, investing, or collecting, knowing what a crypto token is is the first step toward informed participation in Web3.