What is a Token on the blockchain? Understand the core differences between tokens and coins

Why Distinguish Between Token and Coin?

In the early days of cryptocurrency, Bitcoin, Litecoin, Dogecoin, and others were collectively called Coins, with relatively simple concepts. However, after the birth of Ethereum, a new concept called Token became popular, leading many investors to confuse the two. In fact, there is an essential difference between what is a Token and what is a Coin, and this distinction directly impacts your investment decisions.

What is a Token—Starting from Basic Concepts

Tokens are often translated as passes, tokens, or digital tokens. They are a form of representing specific rights, certificates, or digital assets, which can be traded, transferred, and exchanged on the corresponding blockchain. Unlike Coins, Tokens do not have their own independent blockchain; they are issued based on existing public chains (such as Ethereum).

Since Ethereum launched the ERC-20 token standard in 2015, anyone can easily issue Tokens on it. The advent of this standard greatly lowered the issuance threshold, making Ethereum the platform with the largest Token issuance volume worldwide. Currently, DeFi tokens, Layer-2 ecosystem tokens, NFT-related tokens (such as APE, SAND), and others mostly fall into the category of Tokens.

What are the Three Types of Tokens? Their Uses Differ

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

Payment Tokens primarily aim to enable secure, efficient, and low-cost payment functions; stablecoins are a typical example. These Tokens are closer to traditional currencies in characteristics.

Utility Tokens are designed to provide access passes for various applications. Most ERC-20 tokens on Ethereum belong to this category. They grant holders the right to use specific services or ecosystems.

Asset Tokens represent rights to a project or service, allowing holders to enjoy the corresponding asset value. However, it should be noted that in the crypto space, asset Tokens usually do not involve actual equity or dividend rights; they are more like value certificates.

In reality, many Tokens often possess two or even three of these attributes simultaneously, making them difficult to classify into a single category.

What is the Core Difference Between Token and Coin?

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

Bitcoin (BTC) operates on the Bitcoin blockchain, and Ether (ETH) runs on the Ethereum blockchain—they are native assets of their respective networks. Tokens, on the other hand, are built on existing blockchain ecosystems and depend on the host chain.

This difference leads to obvious distinctions in application ecosystems and functionality scope. Coins are usually considered infrastructure layers, while Tokens more often carry application-layer functions.

Here is a detailed comparison:

Invest in Token or Coin? Each Has Its Advantages

There is no absolute answer to this question. It can be understood as: Coins are the infrastructure layer—solving the underlying issues of blockchain networks; Tokens are the application layer—developing various applications and services on top. Both are indispensable.

Compared to Coins, Tokens have greater application scalability and lower implementation costs. The value of Coins is often limited by the infrastructure itself; if it fails, it’s hard to adjust. Tokens, however, can be iterated flexibly based on market feedback—for example, MakerDAO can launch RWA (Real-World Asset Tokenization) services without starting from scratch.

Another key feature is that Token volatility is usually higher than that of Coins. Tokens like UNI, SNX, MKR often experience daily fluctuations exceeding BTC and ETH, especially during bull markets. This creates more opportunities for short-term traders but also entails higher risks.

How to Invest in Tokens? Two Main Methods

Method 1: Spot Trading

Spot trading is the most direct method—trading actual assets in full. For example, if the price of UNI is $3, both parties agree to settle at this price, and the buyer gains actual ownership of the UNI tokens.

Be cautious of risks: beware of fake tokens. The market often has tokens with the same name, which can be confusing. For instance, a high-quality project’s token might be copied, and the counterfeit may not even be listed on exchanges, making it difficult to sell after purchase. Therefore, always verify the real contract address through the official website or blockchain explorer before trading.

Method 2: Margin Trading

Unlike spot trading, margin trading is a non-full amount trading method. Traders only need to pay a portion of the funds as margin, without purchasing the full asset. For example, using 10x leverage to go long on UNI at $3, only $0.3 is needed to control a position of 1 UNI.

In derivatives and U-based contracts, traders do not actually hold the tokens, which avoids the fake token risk present in spot trading. However, leverage trading carries its own risks—Token’s high volatility means a greater risk of liquidation. It is recommended to keep leverage below 10x, especially for newly listed tokens with more volatile prices, and to carefully control positions.

Key Recommendations When Choosing a Trading Platform

Whether for spot or margin trading, selecting a safe, compliant, and regulated platform is the top priority. The platform’s security of funds, trading depth, and risk control mechanisms directly affect your trading experience.

Investing in Tokens is not complicated. The basic process includes:

1. Registration and Verification — Submit personal information and complete identity verification
2. Deposit Funds — Recharge funds into your account through various channels
3. Place Orders and Trade — Based on market analysis, set buy/sell parameters and execute trades

In short, understanding what Tokens are, how they differ from Coins, and mastering basic trading methods can open the door to cryptocurrency investment. The key is to choose the right platform, control risks, and keep learning.