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Digital Token
Practical Law Glossary Item w-024-0323 (Approx. 4 pages)
Glossary
Digital Token
Also sometimes referred to as a crypto token, digital coin, or often simply, "token" or "coin."
A digital representation of value or rights that is offered and sold for the purpose of:
- Facilitating access to, participation in, or development of a distributed ledger, blockchain, or other digital data structure.
- Raising capital for the development of the network or platform.
Utility tokens, typically provide holders with the ability to access, via encrypted key, a particular blockchain or network for purposes of:
- Accessing certain benefits or functionality on that blockchain or platform; or
- Participating in or developing that blockchain or network, or an associated application, enhancement, related functionality, or related product.
Certain digital tokens may be governance tokens, which provide the holder with certain rights related to the governance of a decentralized organization.
Like a virtual currency or cryptocurrency, tokens may be issued by blockchain developers in an initial coin offering (ICO) or other similar offering. These digital utility tokens are typically not intended for use as a currency or means of payment. A digital or utility token may, however, have value, and that value may increase (or decline) as the result of the efforts of other parties. Therefore, in certain cases, digital tokens may have characteristics of securities. If so, they may be digital asset securities subject to the US securities laws (see Practice Note, SEC Regulation of Digital Assets).
Non-fungible tokens (NFTs) are also typically issued as unique digital tokens, most commonly on the Ethereum blockchain.