Token

In simple terms

A token is like a digital coin or ticket that lives on the blockchain. Just as you might own a gift card or collectible card, you can own and trade tokens without needing a bank.

Definition

A digital asset built on an existing blockchain.

In depth

A token is a programmable digital asset created and managed by a smart contract deployed on an existing blockchain network. Unlike the native cryptocurrency of a blockchain (such as Bitcoin or Ether), tokens leverage the underlying chain's consensus mechanism, validator network, and security infrastructure rather than requiring their own. Tokens can represent fungible assets (like ERC-20 currencies), non-fungible assets (like ERC-721 NFTs), or custom logic defined in their smart contract code, and transactions are recorded immutably on the blockchain's distributed ledger.

How does Token work?

A token does not have its own blockchain. A developer deploys a smart contract to an existing chain, and that contract stores a table of addresses and balances. Standards such as ERC-20 define the functions every wallet expects, so transferring a token means sending a transaction that calls the contract's transfer function; the contract subtracts from one balance, adds to another, and records the event. The network fee is paid in the chain's own coin, not in the token. Deploying a token contract is permissionless, so anyone can create one in minutes.

An example

A project deploys a token contract on Ethereum with 1,000,000 units. Someone holding 500 of them sends 200 to a friend. The contract lowers the sender's balance to 300 and raises the recipient's by 200, while total supply stays at 1,000,000. The network fee comes out of the sender's ETH balance, so a wallet holding the token but no ETH cannot move it. Figures are illustrative.

Figures are illustrative only.

What beginners get wrong

• Wallets often show a token balance but no native coin for gas, and the transfer simply cannot be broadcast until some of the chain's own coin is added.
• A token arriving unprompted in a wallet proves nothing about it; anyone can deploy a contract and send worthless or malicious tokens to any address.
• Two different contracts can use the same name and ticker, so match the contract address against the project's official documentation before swapping or sending.
• Approving a contract to spend an unlimited token balance and never revoking that allowance leaves funds exposed if the contract is later exploited.

Related terms

• Coin
• Smart Contract
• Tokenomics
• Governance Token
• NFT (Non-Fungible Token)
• Total Supply
• Tokenization

Part of

What is cryptocurrency, and how does it work? — the subject page for cryptocurrency basics, with all 23 of its definitions in one place.