A token is a digital asset that represents value and ownership on a blockchain network. Tokens provide specific utility and grant access rights on their respective blockchains. They are commonly created through initial coin offerings (ICOs) as a fundraising method. The two main types are utility tokens and security tokens. Utility tokens give users access to products/services on a blockchain platform, while security tokens operate similar to tradable financial assets like shares.
Tokens differ from cryptocurrencies like Bitcoin in that they reside on an existing blockchain rather than having their own standalone ledger. For example, ERC-20 tokens are assets that utilize the Ethereum blockchain. Tokens can enable decentralized operations like decentralized finance and governance through encoded rights and behaviors. Their regulatory treatment depends on whether they are deemed security tokens or utility tokens by authorities.