Open a crypto wallet and you may see ether, stablecoins, governance tokens, and dozens of other assets. It is natural to assume that every token runs on its own blockchain. In reality, many of them are programs living on an existing network such as Ethereum.
A token is usually a smart contract that maintains a ledger. The contract records how many units each address owns and contains rules for transferring those units. When Priya sends ten tokens to Arjun, no separate coin travels through the internet. Ethereum executes the token contract, subtracts ten from Priya’s recorded balance, and adds ten to Arjun’s.
Most fungible Ethereum tokens follow a common interface called ERC-20. It specifies familiar actions such as checking a balance, transferring tokens, and allowing another contract to spend a limited amount. Because wallets and exchanges understand the same interface, a newly created token can be displayed and handled without every application learning an entirely new language.
Fungible means one unit is intended to be interchangeable with another, like one ₹10 coin for another ₹10 coin. Such tokens can represent voting power, access to a service, a claim on collateral, or simply a speculative asset. The code defines the mechanics, but it does not guarantee that the story or value behind the token is genuine.
Creating a token is easy; trusting one is not. Two tokens may share the same name and symbol, so the contract address is the reliable identifier. Before interacting, it is worth checking who can mint more supply, pause transfers, blacklist addresses, or upgrade the contract. Those permissions can matter more than the logo.
Token transfers also use the underlying network. On Ethereum, users still need ether to pay gas even when they are sending a different token. The token depends on Ethereum for ordering, security, and execution; it is not an independent blockchain.
But what if every unit should not be identical? Tomorrow we will look at NFTs, where ownership is tracked by a unique token ID rather than only by a quantity.