“Token” is actually just another term for “cryptocurrency” or “crypto asset”. But the term has taken on some more specific meanings, depending on the context. In the first meaning, the term describes all cryptocurrencies apart from Bitcoin and Ethereum (although in principle these are also tokens). In the second meaning, the term is used to describe certain digital assets that are set up on the blockchain of another cryptocurrency, as is the case with many decentralized financial tokens (or DeFi tokens). Tokens have a wide variety of potential features and support everything from decentralized exchanges to the sale of rare items in video games. In addition, they can all be traded or held just like any other cryptocurrency.
“Token” is a word that is often heard in the field of cryptocurrencies. You may even hear Bitcoin described as a “crypto token” or something similar, since – in principle – all crypto assets can also be described as tokens. But the word has increasingly taken on two specific meanings that are used frequently enough that it is to be expected that you will hear them.
A “token” often refers to any cryptocurrency, except for Bitcoin and Ethereum (although in principle these are also tokens). Since Bitcoin and Ethereum are by far the largest two cryptocurrencies, it is good if you have a term that describes the range of other crypto coins. (Another term with almost the same meaning that you may hear is “Altcoin”.)
The other, increasingly used meaning of “token” even has an even more specific connotation. It describes crypto assets that run on the blockchain of another cryptocurrency. You will come across this meaning when you are dealing with decentralized finance (DeFi). While a cryptocurrency such as Bitcoin has its own, permanently assigned blockchain, DeFi tokens such as Chainlink and Aave run on an existing blockchain, or exploit it. This is most often the Ethereum blockchain.
Thanks to the tokens in this second category, decentralized applications can do everything from automating interest rates to selling virtual real estate. In addition, these tokens can also be traded or held like any other cryptocurrency.