What is a token?

Think of an app that wants to give its users digital units for its services. Instead of building an entire network of its own, it can create a token on top of an existing blockchain, such as Ethereum. It’s like a business that moves into a ready-made building: it runs its own operations, but uses the building’s infrastructure.

On networks like Ethereum, a token’s rules are usually defined by a smart contract, meaning code that runs on the blockchain. It determines, for example, how units are transferred and whether new ones can be created. Standards such as ERC-20 let compatible wallets and apps handle many different tokens in the same way.

That’s also the key difference from a coin: ETH is Ethereum’s native currency, while a token on Ethereum uses the already existing network. In everyday conversation, though, the two words are often used loosely.

Why it matters

Not all tokens do the same job. A utility token can give access to services. A governance token can give the right to take part in a protocol’s votes. Other tokens are designed as stablecoins or represent unique items, such as NFTs.

If you hold tokens in a wallet, it also matters which network they are on. To transfer a token on Ethereum, you usually need ETH for the network fee, known as gas. Holding the token itself isn’t always enough to send it.

What to watch out for

A token’s name and ticker don’t prove its identity. Anyone can create another one with a similar name. We check the correct network and, where available, its contract address.

We think it’s crucial to separate technical capability from promises: holding a token doesn’t automatically give you shares, dividends or legal rights. Those depend on the design and the relevant terms. In addition, bugs in the code or special privileges held by the issuer can affect its transfers and its supply.