Understanding the fundamental difference between Token and Coin in one article

Why Are Token and Coin Often Confused?

In the early stages of cryptocurrency development, the main assets circulating in the market were Coins like Bitcoin, Litecoin, Dogecoin, etc., with relatively clear terminology definitions. It wasn’t until the birth of Ethereum that a large number of tokens issued on public blockchains flooded the market, causing the concepts of Coin and Token to begin overlapping. Since both are translated into “代幣” or “cryptocurrency” in Chinese, many investors have a blurred understanding of the differences between them, and some even confuse the two. In fact, understanding the Chinese definition of Token and its differences from Coin is crucial for investment decisions.

Core Definition and Features of Tokens

A Token is essentially a digital asset certificate representing specific rights, access passes, or other forms of rights, which can be traded, transferred, or exchanged on the corresponding blockchain.

The key feature of Tokens is that they are issued based on existing public blockchains, rather than having their own independent blockchain infrastructure. After Ethereum introduced the ERC-20 standard in 2015, developers could easily create their own tokens, leading to the emergence of DeFi, Layer-2, NFT, and other diverse ecosystems. To this day, Ethereum remains the blockchain platform with the largest issuance of Tokens.

In simple terms, Token is a general term rather than a specific token. All non-native assets on public blockchains—including DeFi governance tokens (like UNI, MKR, AAVE), Layer-2 ecosystem tokens (like MATIC), NFT-related tokens (like APE, SAND)—are within the scope of Tokens.

The Three Main Categories and Application Directions of Tokens

According to the classification framework of the Swiss Financial Market Supervisory Authority (FINMA), Tokens can be divided into three types:

Payment Tokens

Designed to enable secure, efficient, and low-cost payment functions. Stablecoins are the most typical example, pegged to fiat currencies to reduce volatility, and serve as the main trading medium in exchanges and DeFi protocols.

Utility Tokens

Provide access rights and usage certificates for various applications. The most common are ERC-20 tokens on Ethereum. Holders can participate in governance, staking for rewards, or access ecosystem services.

Asset Tokens

Represent ownership or income rights of projects or assets, similar to traditional stocks. It’s important to note that investors in the crypto space usually do not hold actual equity of the issuer nor enjoy dividend rights; asset tokens mainly carry the property of value fluctuation.

It’s worth mentioning that, in theory, these three categories are clearly separated, but in practice, many Tokens have multiple features and are difficult to classify absolutely.

The Fundamental Difference Between Token and Coin

The most fundamental difference is that Coins have their own independent blockchain, while Tokens do not.

Bitcoin (BTC) runs on the Bitcoin blockchain, and Ether (ETH) runs on the Ethereum blockchain. They are native assets of their respective networks, with independent consensus mechanisms and security guarantees. Tokens, on the other hand, must be hosted on existing blockchain ecosystems, relying on the security and performance of the host chain.

This fundamental difference leads to various practical distinctions:

Additionally, the ecosystem applications of Tokens are generally less rich than Coins and may be limited by the performance bottlenecks of the host chain, making it difficult to build a complete independent application ecosystem.

Is Investing in Tokens or Coins Better?

From an investment perspective, both Tokens and Coins have their advantages; it’s not a matter of choosing one over the other.

Development Potential Comparison

If Coins are viewed as infrastructure layer solutions, then Tokens are application layer implementations. The former addresses scalability and security issues of the blockchain itself, while the latter develops various applications and services on this foundation. They complement each other and are both indispensable.

The value of Coins is limited to infrastructure optimization. If a project fails, there is often no alternative, such as the once-prominent projects Quantum Chain (QTUM) and Bytom (BTM), which eventually declined. Token applications are more flexible and diverse; even if one application does not meet expectations, the project team can pivot to new tracks. MakerDAO’s RWA business is a typical example.

Risk and Return Characteristics

Tokens tend to be much more volatile than Coins. Tokens like UNI, SNX, MKR can see price swings far exceeding BTC and ETH during bull markets. This high volatility offers more opportunities for short-term traders but also increases risks. Newly launched tokens are especially prone to extreme price movements, and investors must be vigilant against liquidation risks.

In contrast, Coins serve as long-term store-of-value tools, with relatively moderate and stable fluctuations, making them more suitable for medium- to long-term holdings.

Two Trading Methods for Tokens

Method 1: Spot Trading

Spot trading is based on the full transfer of actual token ownership. For example, if the current trading price of UNI is $3, a buyer pays $3 to obtain one full UNI token and ownership.

Risk Reminder: Be sure to guard against fake tokens when engaging in spot trading. Since anyone can issue tokens with the same name on the blockchain, malicious actors often create tokens with the same name as well-known projects but with no real value, tricking newcomers into buying. Once purchased, it’s very difficult to sell such fake tokens on legitimate exchanges. The way to prevent this is to verify the token’s contract address via the project’s official website or blockchain explorer to ensure you are buying the official genuine version.

Method 2: Margin Trading

Besides spot trading, investors can also participate in Token markets through margin trading. This type of trading does not require holding actual tokens, so there is no risk of fake tokens.

Margin trading uses leverage, allowing investors to control positions far larger than their invested capital with only a margin deposit. For example, using 10x leverage to go long on UNI at $3, only needs a $0.3 deposit to open a position of 1 UNI. If using derivatives like CFDs or USDT-margined contracts, investors never actually own the tokens.

Leverage risk management is critical. Token volatility is much higher than Coins, especially for new tokens that can experience intraday swings of over 10%. It is recommended to keep leverage below 10x and set strict stop-loss and take-profit levels to avoid sudden liquidation.

Core Recommendations for Choosing a Trading Platform

Regardless of the trading method, selecting a safe, reliable platform regulated by authoritative institutions is the top priority for Token investment. The platform should have sufficient liquidity, stable system infrastructure, transparent fee structures, and comprehensive customer asset protection measures.

Before engaging in any Token trading, thoroughly understand the platform’s regulatory background, user reviews, and security records to better protect your assets.