Token

Creating a token costs a transaction fee and a few minutes, because the host network already provides the security. That asymmetry explains both the appeal and the risk: millions of tokens exist, and almost all of them have an identifiable creator who chose the supply, the rules, and often the ability to change them later. Bitcoin is not a token, and nothing you buy that is a token is bitcoin.

How it works

Tokens are entries in a program or a convention, not entries in a chain's own money supply.

On Ethereum and similar networks, the ERC-20 standard, specified as EIP-20 in 2015, defines a handful of functions that a contract must expose to track balances and transfers. Deploy such a contract and the network will faithfully record who holds what, without ever having an opinion about whether those units mean anything. Whoever wrote the contract decides the initial supply, whether more can be minted, and sometimes whether addresses can be frozen. Reading the contract is the only way to know which of those powers exist.

Bitcoin has its own token conventions, and they work differently, because bitcoin's script cannot run that kind of program. Ordinals inscriptions, launched in January 2023, attach data to individual satoshis. The BRC-20 experiment that followed in March 2023 tracks balances entirely off chain by indexing that inscribed data, so the ledger only holds text and the accounting lives in whichever indexer you trust. Runes, activated at block 840,000 on April 20, 2024, is the tidier successor: it records token issuance and transfers in OP_RETURN outputs, which the network prunes from its unspent output set rather than carrying forever.

The largest tokens by value are stablecoins. Tether's USDT passed 100 billion dollars in circulation in March 2024 and exists simultaneously on many networks, each version being a separate contract redeemable, in principle, against the same reserves.

Where you see it

Tokens turn up in three places while you are trying to buy bitcoin, and each one deserves a different response.

The first is the exchange listing page. Binance, Bitpanda, Coinbase, and every other multi-asset venue put tokens in the same table as bitcoin, sorted by market capitalisation, with identical buy buttons. The interface implies the assets are comparable. They are not: a token's price depends on an issuer's decisions, while bitcoin's supply is fixed by consensus rules that no issuer controls.

The second is the wallet screen. If you receive an unexpected token in your wallet, treat it as spam or bait rather than a windfall. Airdropped tokens are a standard opening move in scams that ask you to visit a site and approve a transaction to "claim" or sell them, and the approval is the attack.

The third is bitcoin's own blocks. Inscriptions and Runes compete for the same block space as ordinary payments, which is why the halving block, 840,000, carried roughly 37.6 bitcoin in fees during the Runes launch. You do not have to care about tokens to be charged more for a withdrawal on a day when everybody else is minting them.

Token vs wrapped bitcoin

A token is a native creation of the network it lives on, while wrapped bitcoin is a token that represents bitcoin held elsewhere by a custodian. The distinction matters because wrapped bitcoin looks like the asset you wanted and behaves like a claim on a company: if the custodian fails, is hacked, or is ordered to freeze redemptions, the token keeps trading while the backing does not. Real bitcoin sits in an output on bitcoin's own blockchain, spendable with your key and nobody's cooperation.