Understanding the true meaning of Token: How does it differ from Coin?

Many newcomers entering the cryptocurrency market often feel confused—what exactly is the difference between Token and Coin? Why do people sometimes refer to them as “tokens”? The root of this issue lies in the rapid evolution of the cryptocurrency ecosystem.

Understanding the Meaning of Token: More Than Just a Name, It Represents Rights

The meaning of token encompasses multiple interpretations such as pass, badge, or digital asset. Essentially, a token represents a specific right, certificate, or digital asset carrier that can be traded, transferred, and exchanged on its corresponding blockchain network.

This concept truly gained popularity after Ethereum introduced the ERC-20 standard in 2015. Before that, the crypto world mainly consisted of “Coins” like Bitcoin, Litecoin, Dogecoin, with no confusion. However, with the explosion of the Ethereum ecosystem, anyone could issue their own tokens on Ethereum, leading to the widespread Chinese term “代幣” (dàibì), which caused some investor confusion.

In simple terms, a token is an application-based asset built on an existing public chain and does not have its own independent blockchain infrastructure. To this day, Ethereum remains the blockchain with the largest number of issued tokens.

What Are the Three Types of Tokens? What Are Their Uses?

According to the classification system of the Swiss financial regulators, tokens can be divided into three main categories:

Payment Tokens primarily focus on enabling secure, efficient, and low-cost transactions; stablecoins are a typical example.

Utility Tokens are designed to unlock access to various applications and services. ERC-20 tokens on Ethereum, such as LINK, UNI, and COMP, fall into this category.

Asset Tokens represent ownership or profit rights of a project or asset, similar to stocks. It’s important to note that holding such tokens usually does not mean owning the legal rights or dividends of the project.

In practice, many tokens often possess two or even three of these characteristics simultaneously, making them difficult to categorize strictly.

The Fundamental Difference Between Token and Coin

To understand the core difference between Token and Coin, the key lies in independence.

Coins have their own independent blockchain, for example, Bitcoin runs on the Bitcoin blockchain, Ether on the Ethereum blockchain. They are the native assets of their respective networks. Tokens, on the other hand, are built on existing blockchains and do not have their own blockchain infrastructure.

This fundamental difference further determines their functional positioning and ecosystem status:

What Are the Advantages of Investing in Tokens Compared to Coins?

From an investment perspective, both Tokens and Coins have their merits. Coins are considered infrastructure assets, while Tokens are application service assets. The former provides the underlying framework for the entire ecosystem, while the latter develops various applications and services on top.

Compared to Coins, Tokens offer greater scalability and flexibility. The value of Coins is often limited to optimizing and improving infrastructure; if the project fails, it’s hard to pivot. Tokens can support diversified applications and service models. For example, MakerDAO can launch new business lines at any time.

Another notable feature is volatility differences. Token prices tend to fluctuate much more than Coins, especially in bull markets—volatility of UNI, SNX, MKR, etc., significantly exceeds that of BTC and ETH, providing more opportunities for short-term traders but also higher risks.

How to Trade and Invest in Tokens?

There are mainly two ways to invest in tokens:

Method 1: Spot Trading

Spot trading involves real asset transactions at full value. For example, if the current price of UNI is $3, the buyer pays $3 to receive 1 actual UNI token.

Be especially cautious of fake tokens. The market often features tokens with the same name but no value. Once purchased mistakenly, they are difficult to sell. Always verify the contract address’s authenticity via official websites or blockchain explorers before trading.

Method 2: Margin Trading

Margin trading is a non-full amount trading method, where investors only need to deposit part of the funds as margin. For example, using 10x leverage to go long on UNI, investing $0.3 to control a position worth $3.

This type of trading usually does not involve actual token holdings, avoiding fake token risks but introducing leverage risks. Given the high volatility of tokens compared to coins, it’s recommended that leverage not exceed 10x. Be especially cautious with emerging tokens to prevent liquidation risks.

Choosing a Safe Platform Is the Premise for Investing in Tokens

Regardless of the trading method, selecting a regulated and reputable trading platform is crucial. A secure platform should have comprehensive risk control mechanisms and transparent compliance background, which are fundamental to protecting investors’ assets. Always conduct thorough due diligence on the platform before engaging in any token trading.