A beginner’s guide to crypto tokens and their uses

The UK crypto market has expanded dramatically, with around 12% of British adults now owning cryptocurrency, up from just 4.4% in 2021. For UK retail investors, understanding different digital assets is crucial for informed investment decisions. While Bitcoin and Ethereum’s ether dominate as the primary two cryptocurrencies, thousands of crypto tokens offer unique opportunities and risks.

This crypto tokens guide provides UK retail investors with practical knowledge about digital tokens and their functions within the cryptocurrency ecosystem. With the FCA recently approving crypto ETNs for retail investors from October 2025, understanding tokens becomes essential for UK investors looking to participate safely in this evolving market.

A crypto token is a digital asset built on top of an existing blockchain network, rather than operating on its own dedicated blockchain like Bitcoin or Ethereum. You can think of tokens as applications that run on someone else's computer system. They rely on established blockchain infrastructure but offer unique features and purposes.

Tokens depend on their host blockchain for security and functionality. Majority tokens operate on the Ethereum network using standards like ERC-20, though other blockchains like Solana also host thousands of tokens. This dependency means token performance can be affected by both the token's success and its underlying blockchain's performance.

Bitcoin is a type of digital asset, whereas Ethereum is a decentralised, open-source platform that enables the creation and deployment of smart contracts and decentralised applications. But, tokens are designed for specific purposes within particular projects. A gaming token might provide access to in-game items, while a governance token gives holders voting rights. This specialisation offers you as a UK investor exposure to specific sectors but introduces additional complexity and risk compared to established cryptocurrencies.

Digital token types vary significantly in purpose and risk profile. Each type serves different functions and carries distinct regulatory implications under UK law, as HMRC applies different tax treatments depending on the token's classification.

The main categories of digital tokens available to UK investors include:

1. Utility tokens

Provide access to specific products or services within blockchain ecosystems, such as Chainlink (LINK) for smart contract data feeds.

2. Stablecoins

Designed to maintain stable value by backing their price to fiat currencies, including USDC and Tether (USDT) as digital cash alternatives.

3. Governance tokens

Give holders voting rights in decentralised protocols like Uniswap (UNI) and Compound (COMP), though participation requires technical knowledge.

4. Security tokens

Represent ownership in real-world assets or profit-sharing rights, making them more likely to fall under FCA securities regulations.

Crypto token investment requires a disciplined approach balancing potential returns with higher volatility compared to established cryptocurrencies. A more conservative risk tolerance within an entirely crypto-based portfolio or the crypto portion of your broader portfolio is to limit total token exposure to 10%.

If you are more risk-tolerant, this could rise to between 3% and 50%, while an aggressive approach may see you invest 50% of your crypto portfolio in tokens. The token bull investors tend to be big believers in the future of web3 and DeFi (decentralised finance) and are acutely aware of the prospect of higher risk of loss or long drawdowns..

Research before investing is crucial. Tokens derive value from specific use cases, adoption rates, and project execution. As a UK investor, you could examine the use case, the credentials of the people behind the token, any whitepapers or documentation on the token, and real-world adoption, before committing capital. Diversification within tokens may help manage risk across different sectors. And you can consider spreading exposure across utility tokens, stablecoins, and established governance tokens.

Tax considerations matter significantly for UK token investors. HMRC generally treats token disposal through selling, trading, spending, or gifting as liable for capital gains tax. Keep detailed records of all transactions, including dates, values in GBP, and purposes. Risk management techniques from traditional investing can apply to tokens. Consider setting stop-losses and taking profits gradually. Most importantly, never invest more than you can afford to lose entirely.

Starting your crypto token journey safely in the UK begins with choosing the right platform. The FCA requires all crypto exchanges operating in the UK to register and adhere to anti-money laundering rules.

Choose an FCA-registered UK-based platform for token trading to ensure adherence and consumer protection. Verify any platform's registration status with relevant UK authorities before depositing funds. Consider starting with more established tokens like Tether, Polygon, Chainlink, and DAI, as they provide greater stability that newer tokens often lack.

Simple habits go a long way in keeping your crypto safe.

• Use strong, unique passwords and enable two-factor authentication.
• Store large amounts in a hardware wallet.
• Keep private keys and seed phrases secret.
• Watch out for phishing emails and fake sites.

A few minutes spent on security can save you from a hack or total theft of your crypto investment.

Most beginner errors are easy to dodge if you have a plan and stick to it.

• Chasing hype without checking the project’s fundamentals.
• Neglecting HMRC record-keeping requirements.
• Investing more than you can afford to lose.
• Using weak passwords or sharing private keys.
• Trading on impulse instead of following a strategy.

Skip these mistakes and you’ll protect both your funds and your sanity.

This crypto tokens guide provides the foundation that can help you navigate digital tokens safely within the UK crypto investment landscape. Understanding token types, implementing disciplined investment strategies, choosing the right UK-based FCA-registered platform for you, and prioritising security creates a framework for participating in this evolving asset class while managing risks.

The token economy offers potential opportunities, but only for investors who approach it with proper preparation and realistic expectations.

Ready to explore crypto tokens safely? OANDA Crypto provides UK retail investors with instant access to established tokens, advanced security measures, and educational resources to support informed decision-making. OANDA Crypto is a part of the global leader in foreign exchange and currency data solutions, the OANDA Group, trusted by thousands of the world’s leading organisations.

Don't invest unless you're prepared to lose all the money you invest. Cryptocurrency is a high-risk investment, and you are unlikely to be protected if something goes wrong. Take a few minutes to learn more.

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Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you are unlikely to be protected if something goes wrong. Take a few minutes to learn more.