Token
A token is a digital asset created on top of an existing blockchain, usually by a smart contract, rather than being the blockchain's own native coin.
How tokens are created
Launching a new blockchain is a large undertaking. Creating a token is much simpler: a developer deploys a smart contract that keeps track of who owns how many units and defines how they can be transferred. On Ethereum, most tokens follow the ERC-20 standard, so wallets and exchanges can handle them all in the same way.
The token's rules, such as its supply, whether new units can be minted, and who can pause transfers, are written into that contract. The underlying blockchain simply executes it.
Main types of tokens
Stablecoins aim to track a currency like the US dollar. Utility tokens give access to a product or pay for a service. Governance tokens grant voting rights in a project. Non-fungible tokens (NFTs) represent unique items. Wrapped tokens represent an asset from another chain, such as bitcoin on Ethereum. Some tokens represent real-world assets like bonds and may legally count as securities.
These labels describe intent, not legal status. Regulators look at what a token actually does and how it was sold.
Risks specific to tokens
A token is only as trustworthy as its contract and whoever controls it. Bugs can be exploited. Admin keys may allow the team to mint unlimited new units, freeze balances or change the code. Scam tokens can copy the name and logo of a real project, so the contract address matters more than the name.
Approving a token for a dApp gives that contract permission to move it, and unlimited approvals left in place are a common way people lose funds. Liquidity can also be thin, so selling may move the price a lot.
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Frequently asked questions
What is the difference between a coin and a token?
A coin is native to its own blockchain; a token is created on an existing blockchain by a smart contract.
How do I know a token is the real one?
Check the contract address against the project's official sources. Names and symbols can be copied by anyone.
Can a token be frozen?
Some can. If the contract includes freeze or blacklist functions, the controlling party can block specific addresses, as several stablecoin issuers do.
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