One common meaning is any cryptocurrency that isn’t Bitcoin or Ethereum. Another meaning refers to digital assets built on another blockchain (like many DeFi tokens). Tokens can be used for many purposes, such as powering apps, games, or even trading digital items. Like other cryptocurrencies, tokens can be held or traded.
Token Basics
You might hear Bitcoin described as a "crypto token"—and technically, all cryptocurrencies can be called tokens. But the word "token" usually has two main meanings:
Any cryptocurrency other than Bitcoin and Ethereum (often called "altcoins").
A digital asset that runs on another blockchain, such as many DeFi tokens.
For example, Bitcoin has its own blockchain. But DeFi tokens like Chainlink or Aave are built on top of another blockchain, usually Ethereum.
Tokens built on existing blockchains can power decentralized apps. They can also be traded just like any other crypto.
Why Are Tokens Important?
You'll see the word "token" often when researching crypto. It's helpful to understand what it can mean. Here are some common types of tokens:
DeFi Tokens
DeFi (decentralized finance) tokens are part of crypto-based systems that offer services similar to banks, like lending, saving, insurance, or trading. These tokens can be used within these apps or traded like regular cryptocurrencies.
Governance Tokens
These special DeFi tokens give holders voting power. Because DeFi platforms don’t have CEOs or central leaders, users can help decide how things work. For example, Compound gives out a token called COMP. Holding COMP lets users vote on updates to the protocol. The more COMP you have, the more voting power you get.
Non-Fungible Tokens (NFTs)
NFTs are tokens that represent ownership of unique digital or real-world items. They help protect art and media from being copied. Artists also use NFTs to sell limited edition digital art or rare game items.
Security Tokens
Security tokens are crypto versions of traditional investments like stocks or bonds. They are often used to sell shares in companies or real estate—without needing a broker. Some startups and major companies are exploring security tokens as a new way to raise funds.
How to Store and Use Tokens
To hold and use tokens, you need a secure crypto wallet. A neutral crypto wallet lets you store your tokens safely, send or receive them, and connect to apps or platforms that use tokens for different purposes.
