Recently, I’ve noticed that many beginners are asking one question: what are tokens? Honestly, this is a fundamental concept you have to get clear on before entering the crypto world.

Let me be blunt. At their core, tokens are digital assets built on existing blockchains—you don’t need to build your own independent blockchain. Think of them as tokens issued by a project, circulating and used within that project’s ecosystem. The most common example is ERC-20 tokens on Ethereum. And on chains like NEO and TRON, tokens can also be created.

Why use tokens? Creating your own blockchain is too expensive and takes too long. Issuing tokens using an existing blockchain is much easier: developers only need to pay that chain’s transaction fees. For example, when issuing tokens on Ethereum, you have to use ETH to pay the gas fees. This way you save costs and also get to enjoy all the security features of the blockchain—two wins at once.

When it comes to token types, there are mainly several categories. Utility tokens are meant to serve the project itself, such as for payments, discounts, and the like. Security tokens are more like electronic stocks—holders can receive dividends and voting rights. There are also transaction tokens, governance tokens, capital tokens, and so on. These tokens are widely used in DApps and decentralized applications.

Token use cases are actually pretty wide-ranging. A most straightforward example is real estate transactions: if you sell a house through a smart contract, you can create a token representing that property and embed it into the contract, so there is legal protection. Tokens represent ownership of real assets.

The benefits of using tokens are obvious. First, you save time and money. You don’t have to build your own chain—you can still use all the functions of cryptocurrencies. Second, security is strong. Tokens inherit the security mechanisms of the underlying blockchain. To attack a token, hackers would first have to break the blockchain—so the difficulty is extremely high.

But risks also can’t be ignored. Tokens are extremely volatile. Some projects announce prices of several hundred dollars when they launch, only for them to plummet without a trace right away. Also, tokens are far less liquid than coins: fewer exchanges list them, and trading volume is unstable. New investors are generally less interested in tokens, which further limits tokens’ flexibility.

There are several ways to buy tokens. The cheapest option is to participate directly in ICOs, such as crowdfunding or public sales, where the price is lowest. But this requires you to be able to analyze a project’s potential. After you buy, you have to wait until the token is listed on an exchange before you can trade it. You can also buy directly on a major exchange or other CEXs, which usually provide better liquidity. There are also decentralized exchanges such as Bancor, EtherDelta, and Kyber Network. Lastly, don’t forget to confirm that your wallet supports the token before buying. Trust Wallet, MyEtherWallet, and Im Token are all good choices.

Should you invest in tokens? That really depends on the person. Many analysts suggest that beginners start with coins first, and only then consider tokens. That’s because tokens do carry high risk—even though the upside potential can be huge, volatility is also huge. Coins tend to be more stable and liquid, so their risk is relatively smaller.

But for experienced users who have a knack for reading the market and enjoy the thrill, tokens can be an excellent choice. Tokens are fundamentally speculative, but the profit opportunities can be wild. For example, when Ethereum had its ICO, it was $0.336 per token, and later it rose to $2600—how many times of return is that? So if you have the ability to analyze the market, you not only need to understand what tokens are—you also need to know how to use them.

In short, the crypto market is a place with high risk and high reward. Before investing, make sure you build a solid foundation, understand the logic behind tokens clearly, and don’t blindly follow the crowd. Wishing you all find your own pace on this crypto journey full of opportunities and challenges.