Token

What is a token?

A token is a digital unit of value issued on an existing blockchain, for example on Ethereum. Unlike a coin such as bitcoin, a token uses the infrastructure of another network. Tokens can represent a balance, a voting right, a collectible or pure speculation.

How can a token be used in a scam?

Scammers often create their own token and artificially inflate its price, then dump their own holdings. Honeypot tokens, which you can buy but not sell, also occur. An investigation looks at the issuer, the distribution of the token and the transaction patterns around its launch.

What does it mean if you cannot sell your token?

That may be down to a lack of buyers or to restrictions built into the token. In the latter case the option to sell is blocked technically, which is a known feature of misleading projects.

Which differences actually matter here

The label says almost nothing on its own, so the useful questions are about who stands behind it and what it entitles you to. Some represent a claim on a party that promises to redeem them, some represent a share in a project, and some represent nothing beyond the willingness of others to buy them. Those three sit in completely different places in a file: the first has an identifiable issuer who can be asked something, the second usually comes with documentation, and the third leaves only the market itself as evidence of value.

The second difference that matters is where it lives. Anything issued on someone else’s network depends on that network continuing to run, and on the contract behind it doing what its authors intended. Contracts can contain limits that only become visible when you try to sell, which is why the ability to buy proves very little. In an investigation we therefore record the network, the contract address and the issuer where one exists, because those three determine what can still be verified years later and who, if anyone, is in a position to act.

For anyone weighing a purchase rather than reconstructing one, the shortest useful test is to ask what you would show a bank if it asked where the value came from. If the honest answer is a screenshot of a price, that tells you where this one sits in the three categories above.