A token is a unit of value that lives on a blockchain it did not build. That single distinction separates it from a coin, and it is the reason the word “token” now covers everything from a loyalty point issued by a coffee chain to a claim on a tokenised German government bond. A coin is the native asset of its own ledger: the asset that pays validators and secures the network. A token, by contrast, is a program running on top of somebody else’s ledger, most commonly Ethereum, Solana, or one of their rollups. Understanding that layering is the first and most useful thing a serious reader can take from this article, because almost every downstream question, how the asset is taxed, what it entitles the holder to, whether a regulator classifies it as a security, traces back to the fact that a token is issued, not mined, and issued things have issuers. For the formal definitions this article leans on throughout, see the Blockchain People Glossary.
Figure 1. Coin vs token: layered architecture.
How a Token Actually Comes Into Existence
The mechanics are less exotic than the vocabulary suggests. A developer writes a smart contract, a self-executing piece of code that defines a ledger of balances, a total supply, and a set of rules for transferring ownership between addresses. On Ethereum, that contract almost always conforms to a standard, most commonly ERC-20 for fungible tokens or ERC-721 for non-fungible ones, so that wallets, exchanges, and other contracts can interact with it predictably without needing custom integration for every new asset. Once the contract is deployed, the token exists as an entry in the blockchain’s state, and every subsequent transfer is simply that state being updated according to the contract’s rules and recorded permanently in the chain’s history. No new block validation mechanism is required, no new set of validators has to be recruited, and no fork of the underlying protocol takes place: the token inherits the security, decentralisation, and finality of the base chain it was deployed on, for better and for worse. This is what makes tokens cheap and fast to launch relative to building an independent Layer 1, and it is also why the quality of a token is inseparable from the quality of the chain underneath it. A token on a congested, insecure, or centralised chain carries that chain’s weaknesses regardless of how sound its own contract logic is.
Figure 2. Anatomy of an on-chain token transfer.
The Functional Classes a Practitioner Needs to Distinguish
Not all tokens do the same job, and conflating them is the single most common error in casual crypto commentary. A utility token grants access to a specific product or service within a defined ecosystem, functioning much like a coupon or an API key wrapped in a transferable format, valuable only insofar as the underlying service is used. A governance token confers voting rights over a protocol’s parameters, treasury, or upgrade path, and its value is tied to control over a system rather than to any cash flow the token itself generates. A security token represents a claim on an external asset or enterprise, whether equity, debt, revenue share, or real estate, and is structured, deliberately or not, to resemble a traditional financial instrument, which is precisely why regulators scrutinise it under existing securities frameworks rather than treating it as a novel category. A non-fungible token (NFT), unlike the other three, is not interchangeable unit for unit. Each one is unique, typically representing a specific piece of art, an identity credential, or a specific real-world object, and its value is idiosyncratic rather than fungible with the rest of the supply. A stablecoin, despite the name, is also a token in the technical sense described above when it is issued on top of an existing chain rather than on its own. A practitioner evaluating any token should ask, before anything else, which of these boxes it actually falls into, because the answer determines whether the relevant due diligence is technical, legal, or both.
Figure 3. Four functional classes of tokens.
Examples of Tokens in Practice
Abstract categories are easier to hold onto once they are attached to assets a practitioner can actually look up. Among utility tokens, Chainlink (LINK) pays node operators for delivering off-chain data to smart contracts, and Filecoin (FIL) rewards participants for providing decentralised storage capacity. Among governance tokens, Uniswap (UNI) gives holders voting rights over the protocol’s fee switch and treasury, and Compound (COMP) plays the same role for its lending markets. Among tokens designed to hold a stable price, USD Coin (USDC) and Tether (USDT) are both ERC-20 tokens on Ethereum even though they also exist natively on several other chains, and under MiCA’s taxonomy a euro-referenced instrument of this kind would typically be assessed as an e-money token rather than left in the unregulated “other” bucket. Among non-fungible tokens, the Bored Ape Yacht Club collection and the ENS domain name system both use the ERC-721 standard to represent unique, non-interchangeable ownership records. Among security tokens, Securitize has issued tokenised shares for private companies under US Reg D and Reg A+ exemptions, and tZERO operates a licensed alternative trading system built specifically for trading these instruments. Among asset-referenced and real-world-asset tokens, Ondo Finance’s OUSG wraps short-duration US Treasury exposure in a transferable token, and BlackRock’s BUIDL fund, issued through Securitize, tokenises shares of a money-market fund holding cash, US Treasury bills, and repurchase agreements. None of these examples are endorsements; they are reference points for recognising which functional class a new token belongs to before assessing it further.
Where MiCA Draws the Line
The European Union’s Markets in Crypto-Assets Regulation, which Blockchain People has covered in depth in the MiCA Learn article, does not use the word “token” loosely: it builds an entire taxonomy around it. MiCA separates crypto-assets into three regulated categories plus a residual bucket. Asset-referenced tokens (ARTs) aim to maintain stable value by referencing a basket of assets, currencies, or commodities. E-money tokens (EMTs) reference a single official currency and function as an electronic surrogate for cash. A broad “other” category captures utility tokens and most of what the market colloquially calls altcoins or DeFi tokens, subject to lighter touch white paper and disclosure obligations rather than full authorisation. Security tokens are explicitly carved out of MiCA’s scope and instead fall under existing EU financial instruments law, principally MiFID II, which means an issuer cannot escape securities regulation simply by calling an instrument a token. This carve-out is not a technicality; it is the load-bearing wall of the entire framework, and it is why the classification exercise described above has direct legal consequences rather than being an academic distinction, particularly for any issuer operating in or selling into the EU’s regulated market that Blockchain People’s directory and Ecosystem Spotlight are built to serve.
Tokens as the Building Block for Real-World Assets
The reason tokens matter beyond speculative trading is that the same contract mechanics used to issue a governance token can be used to issue a claim on a treasury bill, a warehouse receipt, a carbon credit, or a fraction of a commercial building. Tokenisation of real-world assets (RWA) does not require inventing new blockchain infrastructure. It requires wrapping an off-chain legal claim in the same ERC-20 or ERC-1400-style contract logic already described above, then adding the compliance layer that off-chain assets demand: identity verification, transfer restrictions, and a legally enforceable link between the on-chain token and the off-chain asset it represents. Platforms such as Centrifuge and Backed Finance already operate this model at production scale for private credit and tokenised bonds respectively. This is the thread that connects the utility-token experimentation of the last decade to the institutional RWA activity now moving into MiCA-regulated markets, and it is the subject Blockchain People will take up directly in the next article in this series, which examines blockchain not as a speculative asset class but as settlement infrastructure for real-world assets.
Figure 4. How tokenisation bridges a real-world asset to the chain.
A coin secures its own network; a token borrows the security of someone else’s, and the value of everything built on top depends on which one you actually hold.
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