Token

1 min read

Pronunciation

[toh-kuhn]

Analogy

Think of tokens like specialized arcade tokens that work within a particular game center—they're not the underlying currency (like the dollars used to buy them), but they have specific uses within that environment, whether representing game credits, prize points, or access to premium attractions.

Definition

A created on an existing platform rather than having its own independent . Tokens represent units of value, access rights, ownership, or utility within decentralized applications and ecosystems.

Key Points Intro

Tokens extend utility beyond simple value transfer to represent diverse and rights.

Key Points

Created on existing blockchain platforms rather than requiring a new blockchain.

Can represent various assets, rights, or utilities depending on design.

Typically follows standardized protocols like ERC-20, ERC-721, or equivalent standards.

Enables innovation and application development without building new blockchain infrastructure.

Example

The Uniswap DEX platform uses its UNI to allow holders to vote on changes, while simultaneously supporting thousands of ERC-20 tokens for trading, all built on top of rather than separate blockchains.

Technical Deep Dive

Tokens implement various standards depending on their functionality and host . On , fungible tokens typically use the ERC-20 standard defining basic functions like transfer() and balanceOf(), while non-fungible tokens use ERC-721 or ERC-1155 for unique asset representation. Similar standards exist on other platforms: BEP-20 (Binance Smart Chain), TRC-20 (TRON), SPL (Solana), etc. Token implementations include capability variations like mintable/burnable supply, access controls, time locks, schedules, or automated distribution mechanisms. Advanced token designs may incorporate governance rights, revenue distribution, mechanisms, curves for , or soulbound properties limiting transferability. From a technical perspective, tokens are essentially specialized databases tracking ownership, managed through interfaces rather than direct operations.

Security Warning

Token contracts can contain vulnerabilities even when following standard implementations. Verify contract audits before significant interaction, and be particularly cautious of tokens with privileged admin functions that could allow creators to modify balances or freeze transfers.

Caveat

Unlike cryptocurrencies that are native to their own blockchains, tokens depend on their host platform's security, functionality, and . This creates additional dependencies and potential points of failure beyond just the itself.

Related Terms

Cryptocurrency

Digital Asset

Blockchain & Cryptocurrency Glossary

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