Mastering Ethereum, 2nd Edition

Chapter 10. Tokens

The word token derives from the Old English tācen, meaning a sign or symbol. It is commonly used to refer to privately issued, special-purpose, coin-like items of insignificant intrinsic value, such as transportation tokens, laundry tokens, and arcade-game tokens. Nowadays, tokens administered on blockchains are redefining the word to mean blockchain-based abstractions that can be owned and that represent assets, currency, or access rights.

The association between the word token and insignificant value has a lot to do with the limited use of the physical versions of tokens. Often restricted to specific businesses, organizations, or locations, physical tokens are not easily exchangeable and typically have only one function. With blockchain tokens, these restrictions are lifted or, to be more accurate, are completely redefinable. Many blockchain tokens serve multiple purposes globally and can be traded for one another or for other currencies on global liquid markets. With the restrictions on use and ownership gone, the “insignificant value” expectation is also a thing of the past.

In this chapter, we look at various uses for tokens and how they are created. We also discuss attributes of tokens, such as fungibility and intrinsicality. Finally, we examine the standards and technologies that they are based on and experiment by building our own tokens.

How Tokens Are Used

The most obvious use of tokens is as digital private currencies. However, this is only one possible ...