Not financial, legal, or tax advice. This guide is for general education only. Many tokens are highly speculative and can lose all of their value. Do your own research before buying any token.

Crypto tokens are digital assets created on top of an existing blockchain rather than having a blockchain of their own. They can represent almost anything of value or utility, from a stable unit of currency to a share of governance in a project or access to a specific application.

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What crypto tokens are

A token is a digital asset issued on a blockchain that already exists, using that network's infrastructure and security. Instead of building and maintaining a whole blockchain, a project can create a token on a platform like Ethereum or Solana and rely on that platform to record ownership and process transfers. This makes tokens relatively quick to create, which is why there are so many of them.

Tokens build directly on the ideas in What Is Cryptocurrency and What Is Blockchain. Where those pieces explain the networks and the money, this one focuses on the wide variety of assets that live on top of the networks.

Coins vs. tokens

The terms get used interchangeably, but there is a clean distinction.

A coin is the native currency of its own blockchain. Bitcoin is the coin of the Bitcoin network, ether is the coin of Ethereum, and SOL is the coin of Solana. Coins typically pay transaction fees and help secure their networks.

A token is issued on top of an existing blockchain and does not have its own. A stablecoin on Ethereum is a token. A project's governance asset on Solana is a token.

So every coin is a cryptocurrency, and so is every token, but they occupy different layers. Coins are the base money of a network; tokens are assets built using that network. For a side-by-side treatment, see Coins vs Tokens.

The main types of token

Tokens serve many purposes. The most common categories include:

  • Stablecoins, designed to hold a steady value, usually pegged to a currency like the dollar. See What Are Stablecoins.
  • Utility tokens, which grant access to a product or service, such as paying for features within an application.
  • Governance tokens, which give holders a vote in how a project or protocol is run.
  • Security tokens, which represent an investment in an external asset and are often subject to securities regulation.
  • Non-fungible tokens (NFTs), which represent unique items such as digital art or collectibles, where each token is one of a kind rather than interchangeable.

A single project may involve more than one type, and the lines between categories can blur.

Token standards

For tokens to work smoothly with wallets, exchanges, and applications, they follow shared technical standards. On Ethereum, the most widespread standard for interchangeable tokens is ERC-20, which defines a common set of rules so any ERC-20 token behaves predictably across the ecosystem. Unique items commonly use a different standard designed for non-fungible assets. Other networks have their own equivalents, such as Solana's SPL standard.

Standards matter because they create compatibility. A wallet that supports a standard can handle any token built to it, without custom work for each one. For a closer look, see What Is an ERC-20.

Risks to understand

  • Extreme volatility and failure risk. Many tokens are highly speculative, and a large number lose most or all of their value. Some are outright scams.
  • Smart contract risk. Tokens depend on code, which can contain bugs or malicious functions.
  • Low liquidity. Smaller tokens can be hard to sell without moving the price sharply.
  • Hype and misinformation. Token marketing can be aggressive and misleading. See How to Keep Your Crypto Safe.
  • Regulatory uncertainty. Some tokens may be treated as securities, with legal implications that are still evolving.

How to get started

Ground yourself in the fundamentals first (What Is Cryptocurrency, What Is Blockchain), and understand the difference between coins and tokens (Coins vs Tokens). When you evaluate any specific token, look at what it actually does, who is behind it, and whether it has real usage, rather than judging by price momentum alone. Keep positions in speculative tokens small relative to your overall holdings.

Build your crypto knowledge with Hodl Up. The token landscape is vast and moves fast. Hodl Up helps you focus on a clear, steady approach to the assets you actually understand, so you can participate without getting swept up in the hype.