Token

Coins vs. tokens

The technical distinction:

• Coin — native asset of its own blockchain (BTC, ETH, SOL).
• Token — built on top of an existing blockchain via smart contract (USDC on Ethereum, BONK on Solana).

Tokens inherit security from the underlying chain but have independent issuance and rules.

Token standards

Major standards:

• ERC-20 — fungible tokens on Ethereum.
• ERC-721 — non-fungible (NFTs).
• ERC-1155 — semi-fungible.
• SPL — Solana token standard.
• Equivalent standards on other chains.

Standards enable interoperability between wallets, exchanges, and dApps.

Token categories

Several functional types:

• Utility tokens — provide access to services.
• Governance tokens — voting rights in protocols.
• Stablecoins — pegged to other assets.
• Memecoins — culture/speculation-driven.
• Security tokens — represent traditional securities.
• NFTs — unique items.
• Wrapped tokens — represent assets from another chain.

The categories overlap and aren't mutually exclusive.

How tokens are created

Typical process:

• Deploy smart contract following token standard.
• Specify name, symbol, decimals, total supply.
• Distribute via airdrop, sale, liquidity pool, or other means.
• List on exchanges, build community.

Token creation is essentially free; viable token launch is expensive and difficult.

Why tokens matter

Several reasons:

• Massive scale — millions of tokens have been created.
• Capital formation — fundraising mechanism for projects.
• Coordination — governance and incentive alignment.
• Speculation — major retail and institutional activity.
• Innovation — composable financial primitives.

Tokens enable use cases that traditional financial systems can't easily replicate.

Risks

Several considerations:

• Most tokens fail — vast majority go to zero.
• Scams common — rug pulls, pump and dumps.
• Regulatory uncertainty — many tokens may be securities.
• Liquidity — many tokens are illiquid.

Token investing requires significant skepticism.

What individuals should know

For users:

• Tokens are highly speculative — most are not investments.
• Verify contract address before transacting — fake tokens are common.
• Understand purpose — utility, governance, or pure speculation.

For builders:

• Token launches require liquidity, distribution, and ongoing development.
• Regulatory landscape is shifting.
• Most projects don't need a token.

Tokens are the fundamental unit of crypto innovation and speculation. Understanding the distinctions between coins, token types, and standards is foundational to navigating the space.