People tend to think that tokens are limited to just cryptocurrencies for transactions. Some others still recognize NFTs as a type of token. However, only few people have comprehensive knowledge of what these digital assets are.
This post will enlighten people on all they need to know about crypto tokens.
What is a Crypto Token?
A crypto token is a digital asset built on an existing blockchain (e.g., Ethereum), representing a specific utility, value, or right. Cryptocurrency tokens are not to be confused with crypto coins. A crypto coin is the native digital currency that operates on an independent blockchain. In simpler terms, the coin is designed specifically to work for that layer1 network. It is usually used as a form of digital money, used for payments, store of value, or incentivizing network participants
On the other hand, a cryptocurrency token is a digital asset that is minted on an existing blockchain. Unlike coins that are used for security and incentivization, crypto tokens are mostly for governance and asset representation.
Types of Crypto Tokens
Cryptocurrency tokens vary significantly, according to the purposes they serve. Before differentiating these digital assets, it is essential to understand one token may serve multiple purposes at once.
That said, these are the different token types:
- Utility Tokens: As their name states, these digital assets serve specific on-chain purposes. It can range from paying transaction fees or commissions to validators or miners. Examples include BTC, TET, ETH, BNB, etc.
- Security Tokens: This form of digital asset represents real-life assets like stocks, real estate, or other commodities. Companies issue these tokens to investors in return for dividends or profit sharing.tZero and Harbor are good examples.
- Governance Tokens: Like their name states, these digital assets give owners voting rights within a system. Their voting power often depends on their portfolio size and other factors. COMP and UNI are great examples..
- NFTs: Non-fungible tokens are unique representations of digital or physical assets. Unlike security tokens, they may not be stocks or bonds that offer dividends or return on investment. Examples include CryptoPunks and other types of digital art.
What is a Crypto Token? How Cryptocurrency Tokens Are Created
Creating a crypto token involves leveraging blockchain technology, smart contracts, and predefined standards to define its functionality and rules. Here’s a breakdown of the process:
Smart contracts are self-executing programs stored on a blockchain. They determine token rules like supply, transferability, and permissions.
Below are the attributes of popular blockchains and their smart contracts:
- Ethereum: Supports the majority of tokens via its ERC standards (e.g., ERC-20 for fungible tokens, ERC-721 for NFTs).
- Solana: Uses SPL (Solana Program Library) tokens for high-speed transactions.
- Binance Smart Chain (BSC): Employs BEP-20 tokens for compatibility with Ethereum tools.
Here is a quick rundown of the crypto token creation process:
- Choose the Blockchain : Decide based on speed, cost, and use case (e.g., Ethereum for DeFi, Solana for gaming).
- Select a Token Standard : Match the standard to the token’s purpose (ERC-20 for utility, ERC-721 for NFTs).
- Write or Deploy a Smart Contract using templates (e.g., OpenZeppelin’s ERC-20 contract) or write custom code.
- Define parameters: name, symbol, total supply, and permissions when deploying the smart contract.
- Test on a Testnet : Deploy the contract on a test network (e.g., Ethereum’s Ropsten) to check for bugs.
- Audit the Code : Engage security auditors to identify vulnerabilities.
- Deploy on the Mainnet : Pay gas fees to publish the contract permanently on the blockchain.
Real-World Use Cases and Examples of Crypto Tokens
- DeFi (Decentralized Finance): Crypto tokens power DeFi platforms like AAVE and SUSHI, enabling users to lend/borrow assets, earn interest via liquidity pools, or “farm” tokens for staking rewards. These tokens automate financial services without intermediaries, reducing costs and expanding access to credit.
- NFTs (Non-Fungible Tokens): NFTs represent unique digital assets—art, virtual real estate, or gaming items—ensuring ownership and scarcity. Platforms like OpenSea or NBA Top Shot use NFTs to sell digital collectibles, while brands tokenize physical assets (e.g., real estate deeds) for fractional ownership.
- Enterprise Solutions: Companies like VeChain use tokens to track products across supply chains, verifying authenticity (e.g., luxury goods) and monitoring logistics in real time. This enhances transparency, reduces fraud, and streamlines compliance for industries like healthcare or automotive.
What are the Risks and Challenges of a Crypto Token?
- Regulatory Uncertainty: Laws governing crypto tokens vary globally, with some countries banning them outright while others impose strict compliance rules. This ambiguity exposes projects to sudden bans, licensing hurdles, or legal disputes over taxation and securities regulations.
- Smart Contract Vulnerabilities: Flaws in token code (e.g., the DAO hack) can enable hacks, thefts, or system crashes. Even minor bugs may cost millions, emphasizing the need for rigorous audits and updates to prevent exploits.
- Market Volatility: Token prices swing wildly due to speculation, leading to bubbles and crashes. Investors face risks of sudden losses, while enterprises using tokens for operations may struggle with unstable valuations or liquidity shortages.
Tectum 3.0 and Tectum 4.0: Tectum Token and Tectum Coin
We recently launched the Tectum 4.0 mainnet – the decentralized version of our blockchain. Unlike 3.0, this version will incorporate validators who will earn a commission for processing transactions. The team also introduced the Tectum Node, which offers the chance to become a validator. From now on, there will be a dedicated wallet for cryptocurrency and a separate medium for locking tokens.
This article presents an excellent opportunity to differentiate these networks. Before going further, it is vital to reaffirm that Tectum Emission Token remains the native digital asset of our network. However, the introduction of 4.0 will result in certain changes.
First, people can migrate Tectum Emission Token (TET) to become Tectum Emission Coin (TEC) to enable them to lock liquidity and become validators. TEC and TET are interchangeable in a 1:1 ratio. In conclusion, what is a crypto token? A crypto token is TET, while a coin is TEC.
