Understand the difference between Token and Coin in one article, and how to invest in Tokens

Why Distinguish Between Token and Coin?

Many new investors in the crypto space often confuse Token and Coin, but in fact, their roles in the blockchain ecosystem are entirely different. This is not only about understanding basic concepts but also directly impacts your investment strategies and risk management.

In the early days of the cryptocurrency ecosystem, it was relatively simple, mainly existing as Coins—such as Bitcoin (BTC), Litecoin (LTC), Dogecoin (DOGE). However, since Ethereum introduced the ERC-20 token standard in 2015, the landscape has changed. Anyone can issue their own Token on public blockchains like Ethereum, leading to a market where Coins and Tokens are used interchangeably. Both are translated as “tokens” or “cryptocurrencies” in Chinese, which further confuses investors.

What Exactly Is a Token?

Token, commonly translated as pass, token, or coin in Chinese, is a digital asset representing specific rights, certificates, or other forms of digital assets that can be traded, transferred, or exchanged on the corresponding blockchain.

Unlike Coins that have their own blockchain, Tokens are issued on other public chains and do not have their own dedicated blockchain. Simply put, if you’re unsure whether a certain token is a Token, it can be understood as a non-standalone blockchain token, including DeFi tokens, Layer-2 tokens, NFT-related tokens (such as APE, SAND), and so on.

It’s also worth noting that Token has an extended application—bank tokens. In traditional finance, bank tokens are a security authentication mechanism used to ensure transaction authenticity. In the crypto world, the concept of tokens has been further extended to serve as a universal tool representing various digital assets and application rights.

What Types of Tokens Are There?

According to the classification framework of the Swiss Financial Market Supervisory Authority (FINMA), Tokens are mainly divided into three categories:

Payment Tokens
Primarily aimed at enabling secure, efficient, low-cost payment functions. Stablecoins are typical examples, such as USDT, USDC, whose value is pegged to the US dollar, suitable for on-chain settlement.

Utility Tokens
Designed to provide access to various applications. Most ERC-20 tokens on Ethereum fall into this category, granting holders rights to use a particular application or protocol. For example, Uniswap’s UNI token allows holders to participate in governance voting.

Asset Tokens
Represent ownership of a project or asset. Holding such tokens means being a part of the project, with potential for value appreciation, similar to traditional stocks. However, it’s important to note that asset tokens in the crypto space usually do not involve company ownership or dividend rights.

In reality, many Tokens often possess two or even three of these attributes simultaneously, making strict classification difficult.

The Core Difference Between Token and Coin

The fundamental difference is that Coins have their own blockchain. Bitcoin runs on the Bitcoin blockchain, and Ether runs on the Ethereum blockchain. They are the native assets of these networks.

While Tokens do not have their own blockchain, they are built on existing blockchain ecosystems. This results in Token ecosystems generally being less developed than Coins, and sometimes unable to support independent applications.

Should You Invest in Tokens or Coins? Which Is More Suitable for You?

Both are closely related and each has its advantages. It’s hard to say which is absolutely better.

Think of Coins as public chain cryptocurrencies, while Tokens can be understood as application-layer cryptocurrencies. The former mainly addresses infrastructure issues, while the latter develops various applications and services on top of that infrastructure. Both are indispensable.

What are the advantages of Tokens over Coins?

Tokens have greater scalability in applications and services, and are easier to implement. The value of Coins is limited to infrastructure optimization; if they fail, there’s often no alternative. The value of Tokens lies in providing various services or applications. Even if a product is not popular in the market, the development team can launch new products. For example, MakerDAO not only issues the stablecoin DAI but also has expanded into RWA (Real World Assets) business.

However, Tokens tend to be more volatile than Coins. For example, the price swings of UNI, SNX, MKR are usually larger than BTC, ETH, especially during bull markets. This creates more and bigger investment opportunities for short-term traders, but also entails higher risks.

How to Invest in Tokens? Two Methods Explained

Method 1: Spot Trading of Tokens

Spot trading involves full settlement of actual assets. For example, if the current price of UNI is $3, and someone buys one UNI, they will pay $3 and obtain ownership of the UNI.

A reminder here: always beware of fake tokens when doing spot trading. Some malicious teams issue fake tokens with the same name as well-known tokens to deceive beginners. The simple way to prevent this is to verify the token’s contract address on the official website or blockchain explorer (like Etherscan) to ensure you are purchasing the real Token.

Method 2: Margin Trading of Tokens

Besides spot trading, Tokens can also be invested through margin trading. This type of trading generally does not involve actual token delivery, so there is no risk of fake tokens.

The biggest difference from spot trading is that margin trading is not full amount trading. You only need to use part of your assets as collateral, without paying the full amount. For example, using 10x leverage to go long on UNI at $3, you only need $0.3 to control a position of 1 UNI. If trading via CFDs or U-based contracts, you don’t even need to hold the actual Token.

Margin trading risk warning:

Since Tokens are usually more volatile than Coins, controlling position size and leverage is crucial. Experts recommend keeping leverage below 10x. While daily volatility of BTC has become less frequent at 10%, Token volatility remains high, especially for newly issued tokens, increasing the risk of liquidation.

Quick Start to Token Investment

The basic process of investing in Tokens is similar to investing in Coins:

1. Choose a platform – Ensure it is secure, reliable, and regulated by authoritative agencies.
2. Search for the token – Enter the Token name or code in the platform’s search box.
3. Set parameters – Fill in your trading details, including buy/sell, order type, quantity, leverage, stop-loss/take-profit prices.
4. Place the order – Confirm the details and click confirm to complete the trade.

Whether spot or margin trading, choosing a safe and regulated trading platform is the first step in investing in Tokens.

Summary

Although Tokens and Coins are both digital assets, they differ significantly in structure, function, and application prospects. Coins represent independent blockchain systems, while Tokens are application-layer assets built on existing blockchain infrastructure. Investors should fully understand their characteristics and choose appropriate investment strategies based on their risk tolerance and goals.