What Is a Token? Token Classification Explained
1.1 Defining Tokens
Tokens, also known as Fungible Tokens, represent digital assets on blockchain networks. These can symbolize cryptocurrencies, points, financial instruments, in-game assets, or ownership rights. On Ethereum, tokens are created and managed via smart contracts.
1.2 Token Categories
1.2.1 Currency Tokens
Digital currencies like USDT, DAI, and LTC fall under this category, serving as mediums of exchange.
1.2.2 Equity Tokens
These represent stakes in projects or companies, offering profit-sharing rights. Examples include:
- BCAP: Represents ownership in Blockchain Capital’s investment fund.
- SPICE: Denotes shares in SpiceVC’s blockchain-focused ventures.
1.2.3 Utility Tokens
Grant access to platform services, such as:
- BAT: Used in Brave’s ad ecosystem to reward content creators.
- MATIC: Powers Polygon’s Ethereum-scaling transactions.
1.2.4 Governance Tokens
Enable voting on protocol changes, exemplified by:
- UNI: Uniswap’s token for decentralized decision-making.
- AAVE: Aave lending platform’s governance instrument.
👉 Explore top DeFi governance tokens
Note: Tokens like UNI serve multiple roles—governance, utility, and tradeable assets.
ERC-20: The Foundation of Ethereum Tokens
2.1 What Is ERC-20?
ERC-20 is a technical standard for Ethereum-based tokens, ensuring interoperability across wallets and exchanges. It defines rules for token transfers, approvals, and supply tracking.
Why ERC-20 Matters
- Standardization: Streamlines integration with dApps and services.
- Compatibility: Tokens work seamlessly with MetaMask, Coinbase, etc.
- Security: Reduces risks via uniform contract structures.
👉 Learn how to create ERC-20 tokens
FAQ
Q1: Can ERC-20 tokens represent non-fungible assets?
No, ERC-20 tokens are fungible. For unique assets (e.g., NFTs), use ERC-721 or ERC-1155.
Q2: How do I store ERC-20 tokens safely?
Use hardware wallets like Ledger or software wallets such as Trust Wallet.
Q3: Are ERC-20 tokens only on Ethereum?
Primarily yes, but other blockchains (e.g., BSC) support ERC-20 clones via bridges.