Beyond Coins: Tokens
In the crypto ecosystem, a useful distinction exists between coins and tokens. Coins are the native currencies of their own blockchain (Bitcoin on the Bitcoin network, Ether on Ethereum). Tokens are assets created on top of an existing blockchain using smart contracts.
The most prevalent token standard on Ethereum is ERC-20 — a technical specification that defines a standard interface for fungible tokens. Any developer can create an ERC-20 token, specifying its name, symbol, total supply, and distribution rules. This capability led to an explosion of token creation during 2017–2018 and again in 2020–2021.
Token Types
Utility tokens: grant the holder access to a specific product or service. Filecoin (FIL) pays for decentralised storage; Chainlink (LINK) pays for oracle data services. Utility tokens theoretically derive value from the demand for the service — if the service is used, the token is needed.
Governance tokens: grant voting rights over a protocol's parameters. Uniswap (UNI) holders can vote on protocol changes; Compound (COMP) holders control that protocol's parameters. The value of governance tokens depends on how valuable control of the protocol is — questionable when most governance decisions attract low participation.
Security tokens: represent ownership of a real-world asset (equity in a company, real estate, debt) tokenised on blockchain. These are subject to securities regulation wherever they are offered. The promise of security tokens — global 24/7 trading of traditionally illiquid assets — has seen limited adoption relative to early projections.
Meme and speculative tokens: created purely for speculation with no underlying utility. These are the highest-risk category and have been the source of most retail investor losses in the token market.
The ICO Era
Between 2017 and 2018, Initial Coin Offerings (ICOs) became the dominant mechanism for crypto project fundraising. A project would publish a whitepaper describing a vision, create tokens, and sell them to the public — typically for Bitcoin or Ether — before building any product. ICOs raised over $20 billion globally in 2018 alone.
The ICO boom ended catastrophically for most investors. Studies estimated that 80% or more of 2017 ICOs were scams or failed projects. The few that succeeded — Ethereum itself was an ICO in 2014, raising $18 million — were vastly outnumbered by projects that took investor capital and delivered nothing.
Regulatory responses followed: the US SEC determined that most ICOs sold unregistered securities and took enforcement action against numerous projects. The ICO format evolved into IDOs (Initial DEX Offerings), IEOs (exchange-facilitated), and various token launch mechanisms — but the fundamental dynamic of retail investors funding unproven projects remained.