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Crypto term

What Is Crypto Token? Meaning & Example

A plain-English definition of Crypto Token: what it means, how it works, and a simple example.

Quick answer

A crypto token is a digital asset created on an existing blockchain, unlike a coin which has its own native blockchain, and can represent anything from utility to ownership.

A crypto token is a digital asset built and deployed on an existing blockchain rather than running its own. For example, Ethereum has its native coin, Ether (ETH), but thousands of tokens like USDT, UNI and LINK also run on the Ethereum network using its ERC-20 token standard.

Coin vs token

FeatureCoinToken
Has its own blockchainYesNo
ExamplesBTC, ETH, SOLUSDT, UNI, LINK
Primary usePayments, transaction feesUtility, governance, representation
Created byLaunching a new blockchainDeploying a smart contract on an existing chain

The distinction matters technically but both are classified as Virtual Digital Assets under Indian tax law and treated identically for tax purposes.

Types of tokens

  • Utility tokens: grant access to a specific product or service within a platform. For example, Filecoin tokens pay for decentralised file storage.
  • Governance tokens: allow holders to vote on protocol decisions. UNI holders vote on Uniswap's development.
  • [Stablecoins](/glossary/stablecoin): tokens pegged to a fiat currency like the US dollar.
  • Security tokens: represent ownership in a real-world asset like equity or property. These may be subject to securities regulation.
  • [NFTs](/glossary/nft): non-fungible tokens representing unique digital items.
  • Wrapped tokens: represent a coin from one blockchain on another, for example Wrapped Bitcoin (WBTC) is a token on Ethereum that represents Bitcoin.

Token standards

The most common token standards are: - ERC-20: the standard for fungible tokens on Ethereum. - ERC-721: the standard for NFTs on Ethereum. - BEP-20: fungible tokens on BNB Chain. - SPL: tokens on Solana.

These standards define a common interface so that wallets, exchanges and DeFi protocols can interact with any compliant token.

Tax treatment in India

All crypto tokens, whether utility, governance, stablecoin or NFT, are classified as Virtual Digital Assets under Section 2(47A) of the Income Tax Act. Gains are taxed at 30% under Section 115BBH. The 1% TDS under Section 194S applies on transfers above the threshold.

Risks

  • Low-quality tokens: anyone can create a token, and thousands have no real use case.
  • Rug pulls: developers can drain liquidity from a token's trading pool.
  • Regulatory classification: security tokens may face additional legal requirements.
  • Smart contract risk: tokens depend on the underlying blockchain and their own smart contract code.

Crypto Token FAQs

The questions people most often ask about Crypto Token, answered for Indian readers.

What is the difference between a crypto coin and a token?

A coin like Bitcoin or Ethereum operates on its own native blockchain. A token is built on an existing blockchain using a smart contract, like USDT running on Ethereum. Both are digital assets, but coins power their own network while tokens ride on another network's infrastructure.

How are crypto tokens taxed in India?

All crypto tokens, including utility tokens, governance tokens, stablecoins and NFTs, are treated as Virtual Digital Assets. Gains are taxed at a flat 30% under Section 115BBH. A 1% TDS is deducted under Section 194S on transfers above the prescribed threshold.

Can anyone create a crypto token?

Yes. Creating a token requires writing and deploying a smart contract on a blockchain like Ethereum. The process can be done in minutes with basic coding knowledge. This low barrier to entry is why thousands of tokens exist, and why many are scams or have no real value.

How do I identify a fake or scam token?

Check the token's contract address against official project sources. Look for verified contracts on blockchain explorers. Research the team, audit reports and community. Be wary of tokens promising guaranteed returns, those with anonymous developers, and tokens you receive unsolicited in your wallet.

What is an ERC-20 token?

ERC-20 is a technical standard on the Ethereum blockchain that defines how fungible tokens work. It specifies functions like transfer, balance and approval so that all compliant tokens are compatible with Ethereum wallets, exchanges and DeFi protocols. Most tokens on Ethereum follow this standard.

Related terms

CryptocurrencyEthereumSmart ContractStablecoinNFT (Non-Fungible Token)Blockchain

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A note on accuracy: this definition is for general education, not personalised financial or tax advice. Figures are illustrative and rules can change. Confirm anything that affects a real decision.