What is a Crypto Token?

By Boris Dzhingarov

Crypto tokens enable transactions on blockchain networks and are an investment. They’re commonly sold during initial coin offerings (ICOs) or exchanges.

Blockchain technology makes the history of any digital asset unalterable and transparent, making it easier for businesses to track and trade them. Non-fungible tokens (NFTs) have also proven popular among cryptocurrency enthusiasts because they allow people to own unique digital media such as video games or music files.


Crypto tokens are units of value created on top of existing blockchain networks. While coins are native to their respective networks, tokens rely on a host network’s consensus mechanism and security for support – much like shares in a company: their price fluctuates depending on performance of both host blockchain platform and platform where tokens reside.

Crypto tokens have numerous uses, from raising funds through initial coin offerings (ICOs), providing access to platform services and storing digital goods, to facilitating transactions on blockchain networks using cryptographic signatures for security. Furthermore, they may even serve as currency in their own right – often being exchanged against other cryptocurrencies.

There are various kinds of crypto tokens, each designed for specific uses. Utility tokens represent ownership of platform products or services while securities operate like shares under regulation by financial bodies such as the Securities and Exchange Commission or similar authorities. Finally, wrapped tokens tie their price directly with another digital currency in a 1:1 ratio.

These tokens are frequently employed as transactional units on blockchains that follow standard templates, like Ethereum’s network. Users are then able to create tokens. Such blockchains operate using smart contracts or decentralized applications which use self-executing code in order to process and manage various transactions.

Tokens can also be divided into two legal categories, security and utility. Security tokens represent investors’ stake in companies, which can then be traded on exchanges; utility tokens provide access to services without strict regulation; examples include bitcoin, ether and NFTs (non-fungible tokens), which have become increasingly popular within the crypto industry and allow individuals to digitize unique digital creations like artwork or tweets and trade them on an online marketplace; these provide an alternative to government-regulated e-commerce platforms.


Crypto tokens are digital assets designed for decentralized projects that use blockchains and are built for use on programmable, permissionless systems like Ethereum. There are six categories of crypto tokens: transactional, governance, utility, security and platform. Each has different purposes and functions allowing them to be traded as commodities.

Digital certificates serve a range of functions, from providing access to products and services on decentralized networks to serving as ownership transfers of physical assets such as art or real estate, acting as proxy investments like stocks and bonds or even representing shares in companies or products or services that use tokens as currency.

Tokens can be created by blockchain-based companies in order to raise funds for their project and distributed among investors. Some tokens may even be backed by physical assets like oil or gas reserves or specific commodities; these tokens may then be exchanged on decentralized platforms for goods and services or sold for profit.

These tokens provide similar functions to cryptocurrency, yet are more straightforward for developers to design and code. No blockchains need to be created – developers simply follow an existing template and modify it according to their requirements – which helps startups get projects underway more rapidly.

Crypto Tokens differ from cryptocurrency in that they don’t possess their own blockchain; rather they run on Ethereum’s. Their roles and characteristics are defined in smart contracts which govern how these tokens interact with one another within a blockchain network.

Utility tokens are the most widespread type of crypto token. They’re most often used to gain access to specific products or services on platforms – be it as reward tokens in social media apps or currency for blockchain networks – like for decentralized storage network storage costs. Other examples of utility tokens include Basic Attention Token (BAT), Golem and Brickblock.


There are various rules and regulations surrounding crypto tokens, some designed to safeguard user privacy while others aimed at upholding transaction integrity. Examples of regulations that protect user investments or hold founders accountable include regulations banning unauthorised crypto exchanges as well as following specific protocols when creating tokens (such as Malta’s framework which mandates certifications before running an initial coin offering [ICO]. Other countries like Japan and Australia also offer such frameworks).

These tokens, known as security tokens, are specifically designed to store data that can be used for digital signatures and authentication. This makes them invaluable tools in replacing passwords when accessing secure systems or services – with small keypads to enter PIN numbers or biometric information (fingerprints etc) on behalf of users; then the token generates its own signature that can be verified by systems like Amazon Web Services (AWS).

Other tokens are designed to facilitate decentralized applications (dApps) that run on blockchain technology. These so-called platform tokens can be exchanged for various services on the underlying platform; one example would be Ethereum-based Uniswap using them.

Utility tokens enable users to interact with the dApp in specific ways, and can be exchanged for goods and services on the dApp or traded on traditional cryptocurrency exchanges. One such popular utility token is Brave’s Basic Attention Token which allows them to tip content creators on their favorite sites.

Stablecoins are another type of token operating on a blockchain and backed by real assets or funds, similar to real currency or commodity investments. Regulated by financial authorities, stablecoins may be considered electronic money or commodities under certain regulations. They’re usually secured against short-term government bonds, fiat currencies, commodities, or real estate holdings as collateral for backing.


Crypto tokens are digital representations of value created using blockchain technology, used in transactions using cryptocurrency exchanges such as cryptocurrency exchanges or initial coin offerings (ICOs). They’re commonly employed in initial coin offerings (ICOs) – initial coin offerings – to raise funds for projects; some ICOs may be scams while many legitimate businesses attempt to raise funds through an ICO; whether or not to invest in one is up to individual investors and requires proper due diligence on both teams and projects involved with any proposed ICO investments – to avoid investing in potential scams! In order to do their own due diligence before investing – investors should investigate both projects’ teams as well as company financial history and track records before deciding to invest in any particular ICO.

Tokens can represent various assets, such as physical and virtual goods, services or utility rights. They also serve as a medium of exchange such as currency. Their value depends on supply and demand, which can increase or decrease. They’re programmable through software protocols comprising smart contracts that define their roles and characteristics.

Some crypto tokens are designed to provide greater privacy by offering improved security than Bitcoin or mainstream cryptocurrencies, known as privacy coins, on the crypto market. Privacy coins are becoming more practical uses such as secure storage and decentralized finance; many are scams; however it’s essential that investors research both teams behind a privacy coin before deciding to invest.

Pump-and-dump schemes are one of the biggest scams associated with crypto tokens. This involves people purchasing a token on one platform before selling it off onto another for profit. Chainalysis conducted a study that tracked profits from such schemes and discovered that over 445 individuals or organizations committed at least one pump-and-dump last year alone.

Dependent upon your jurisdiction, some crypto tokens could be considered securities and require registration. Before buying one, be sure to confirm whether its issuer meets regulatory requirements; searching the company name on your government’s website can reveal whether an ICO has registered in your region; you could also use SEC’s Howey test as another way of determining its classification as security.