What is a token in crypto? Crypto tokens explained
A token in crypto is a digital asset created on top of an existing blockchain, such as Ethereum or Solana, instead of running on its own network. Tokens are issued by smart contracts and can stand for almost anything: a stablecoin that tracks the euro, a vote in a protocol, access to an app, or a claim on a real-world asset.
That sets tokens apart from crypto coins like bitcoin and ether, which are the native currency of their own blockchain. People use “coin” and “token” loosely, but the difference matters when you send, store or pay fees for them.
What is a crypto token as a digital asset?
A crypto token is a balance recorded by a program that runs on someone else’s blockchain. The blockchain keeps the shared ledger; the token’s smart contract sets the rules: how many tokens exist, who holds them and what happens when they move.
Think of a blockchain as a railway network and tokens as the wagons running on its rails. The track was built once, and anyone can add new wagons without laying new track. That is why there are far more blockchain tokens than blockchains with their own coin.
Well-known examples of cryptographic tokens:
- USDC and USDT: stablecoins that exist as tokens on Ethereum and several other blockchain networks.
- LINK and UNI: Ethereum-based tokens tied to the Chainlink data network and the Uniswap decentralised exchange.
- BAT (Basic Attention Token): a utility token used for ads and rewards in the Brave browser.
How crypto tokens work
Crypto tokens work through smart contracts: small programs on a blockchain that track balances and transfers. To create a token, a project deploys a contract that sets the name, ticker, total supply and the rules for minting or burning units. Token creation costs little more than a network fee, which is why so many tokens exist, and why so many are worthless.
Most tokens follow a shared standard so that wallets and exchanges can support them without custom work:
- ERC-20 on the Ethereum blockchain for interchangeable (fungible) tokens. Our ERC-20 entry explains the details.
- ERC-721 and ERC-1155 for non-fungible tokens.
- SPL tokens on Solana.
When you send a token, you pay transaction fees in the host chain’s coin, not in the token. To move €200 of USDC on Ethereum, your wallet needs a little ETH for gas. This catches many beginners out: the tokens are in the wallet, but they can’t move until you top up the coin.
Crypto coins vs crypto tokens
Crypto coins run their own blockchain; tokens borrow an existing one. Technically, tokens are entries in a smart contract, while coins are built into the network’s own rules and pay for its security.
| Crypto coin | Crypto token | |
|---|---|---|
| Blockchain | Its own blockchain | An existing blockchain |
| Examples | BTC, ETH, SOL | USDC, LINK, UNI |
| How it’s created | Launching a new network | Deploying a smart contract |
| Network fees | Paid in this coin | Paid in the host chain’s coin |
Ether is a coin on Ethereum, while wrapped ether (WETH) is an ERC-20 token that represents it. XRP is a coin too, because it is the native asset of the XRP Ledger.
Types of crypto tokens
Crypto tokens fall into a few types, based on what they give token holders. The lines are blurry, and one token can fit more than one box.
Utility tokens
A utility token gives access to a product or service inside a token ecosystem, such as paying for storage or unlocking features in an app. Its value depends on people actually using that service. If the platform never catches on, the token has little reason to hold value.
Governance tokens
Governance tokens let holders vote on changes to a protocol, such as fee levels or how a treasury is spent. In practice, a few large holders often decide the outcome, and turnout is usually low.
Stablecoins and commodity tokens
Stablecoins aim to keep a stable value by tracking a fiat currency such as the euro or the dollar, backed by reserves. Commodity tokens do the same for physical assets such as gold. Both are only as good as the reserves behind them, so check who holds the reserves and whether they are independently audited.
Security tokens and real-world assets
Security tokens represent ownership of something that legally counts as an investment, such as a share, a bond or a fund unit. Real-world asset tokens can offer fractional ownership of things like government bonds. In the EU, tokens that count as financial instruments fall under the same securities rules (MiFID II) as traditional securities, not under MiCA.
NFTs
Non-fungible tokens (NFTs) are unique: each one has its own ID, so one NFT can’t be swapped one-for-one with another. They are used for digital art, collectibles, game items and tickets. Owning an NFT usually means owning the token, not the copyright to the artwork.
Meme coins
Meme coins are mostly tokens with no product behind them, driven by jokes and online attention. Their prices can swing wildly within hours, and many lose nearly all their value. Treat them as a gamble, not an investment.
Initial coin offering (ICO) and other token sales
An initial coin offering (ICO) is a token sale in which a project sells new tokens to the public to raise funds, often before its product exists. ICOs boomed around 2017 and were followed by initial exchange offerings, where an exchange runs the sale. Many of those projects failed, and some were outright fraud.
In the EU, MiCA now sets rules for public token sales. Anyone offering most crypto assets to the public must publish a crypto-asset white paper describing the project, the rights attached to the token and the risks. A white paper is not an approval: regulators don’t check whether the project is any good.
Why tokens matter to you in the EU
MiCA, the EU’s crypto law, has applied in full since 30 December 2024, and its stablecoin rules since 30 June 2024. It sorts tokens into three groups:
- E-money tokens: stablecoins pegged to one official currency, such as a euro stablecoin.
- Asset-referenced tokens: tokens that track a basket of currencies, commodities or other assets.
- Other crypto assets: everything else, including most utility tokens.
In practice, this means three things for you:
- Licensed platforms only. Since 1 July 2026 only MiCA-authorised providers may offer crypto services in the EU. Bitvavo and Kraken are examples; check any other platform in ESMA’s register.
- No compensation scheme. Crypto assets aren’t covered by investor compensation schemes such as the Dutch one. If a token goes to zero, nobody reimburses you.
- Taxes apply. In the Netherlands, tokens count towards your box 3 assets. In Germany, gains on tokens sold within a year of buying are taxed as a private sale; after more than a year they are tax-free under current rules.
How to buy crypto tokens in Europe
To buy crypto tokens in Europe, open an account with a MiCA-authorised exchange, complete identity verification, deposit euros by SEPA transfer and place an order on the token you want. Only buy tokens the exchange lists itself, and check that the network matches your wallet before you withdraw.
Before you buy, check the basics:
- Contract address: copy it from the project’s official site and check it on a block explorer. Scammers create copycat tokens with the same name.
- Supply and unlocks: how many tokens exist, and when team tokens unlock. Our page on tokenomics explains what to look for.
- Control: can someone mint new tokens or freeze transfers?
- Network: sending an ERC-20 token to an address on another chain can mean losing it.
The bottom line
A token is a crypto asset that runs on another blockchain’s rails. That makes tokens cheap to create and flexible, which is both their strength and their main risk. Before you buy one, know what it gives you, which network it runs on and whether the platform selling it is licensed where you live.
Questions people ask
What is the difference between a coin and a token?
A coin is the native currency of its own blockchain, like BTC on Bitcoin or ETH on Ethereum. A token is created by a smart contract on an existing blockchain and uses that chain's coin to pay network fees.
Are crypto tokens worth anything?
A token is only worth what someone will pay for it. Stablecoins are backed by reserves, while most other tokens depend on demand for the project behind them, and many end up worth close to nothing.
What is an example of a token?
USDC, a dollar stablecoin, is a token on Ethereum and several other blockchains. LINK and UNI are other well-known tokens on Ethereum.
Is XRP a token or a coin?
XRP is technically a coin, because it is the native asset of its own blockchain, the XRP Ledger. People often call it a token anyway, as the two words are used loosely.
Are crypto tokens legal in the EU?
Yes. Buying and holding crypto tokens is legal in the EU, and MiCA regulates the companies that issue them or offer them to you. Use a MiCA-authorised platform, because only those may serve EU residents since 1 July 2026.