Basic definition for a token is: a unit of value issued by a private entity. They are exchange tools based on the blockchain. Tokens share some similarities with cryptocurrencies/coins but they can be used for much broader purposes. According to ‘The Business Blockchain’ by William Mougayar tokens are created by organizations to self-govern their business models so that their users can interact with the organization’s products “while facilitating the distribution and sharing of rewards and benefits to all its stakeholders”. Tokens can be used internally to an organization to grant rights, pay for services to employees or for transfer of data. Thus they serve as incentives, a way to get more services, and improve user experience. All stakeholders in a network (miners, developers, token holders) are incentivized to grow and contribute in order to be rewarded with tokens in the network. Every organization decides on their own how many layers of value their token will have.

There are usually two types of token. Usage tokens are needed to use a product or service of an organization. Work tokens provide users with the right to contribute work for the organization and be rewarded in return. Some tokens serve as both types. They can also serve as digital assets that need to be claimed from the issuer (organization) and can be passed between people as recorded on the blockchain.