Token vs Coin: Discover what differentiates these two assets in the crypto market

Many people get confused when they hear about “token” and “coin” — sometimes the terms are used interchangeably, but the reality is quite different. Understanding what a token truly represents and how it differs from coins is essential for those who want to navigate the cryptocurrency universe more effectively.

Coins: the foundation of their own blockchains

A digital coin functions as a native asset, meaning it has its own dedicated blockchain. Bitcoin, Litecoin, and Ethereum are perfect examples — each exists on its own blockchain infrastructure. They serve as substitutes for traditional money, enabling direct transactions between individuals.

All coin transactions are recorded in a global, decentralized database — the blockchain. This system is constantly verified by computers around the world, ensuring security and transparency. That’s why coins have the trust they do: their records are immutable and auditable.

What is a token: building on existing infrastructure

Unlike coins, tokens are created on top of existing blockchains. The most popular platform for this is Ethereum, which allows the creation of tokens through smart contracts. There are also options on other blockchains like NEO and Waves.

A token goes far beyond simply being a value for exchange. While a coin is primarily used as a means of payment, a token can have multiple functions and purposes. Tokens often gain value based on their scarcity and utility within a specific ecosystem.

Token classifications: understanding each type

Security Tokens — Function like investment securities, blending features of futures and initial offerings of securities. Most tokens launched in ICOs fall into this category. Buyers are investing with the expectation of returns, and they are regulated as traditional securities.

Equity Tokens — Represent ownership or shares in the issuing company. They are rare because regulation regarding their legality and treatment is still unclear.

Utility Tokens — Serve specific functions, granting access to products or services within a platform. Their rarity occurs because they are expected to gain value naturally through limited supply.

Payment Tokens — Used exclusively for paying for goods and services, they are functionally similar to coins but retain their status as securities and are not full cryptocurrencies.

In practice: which to use and when?

Coins like Bitcoin, Litecoin, and Ethereum are generally used as money but often have additional utilities. Ethereum, for example, powers decentralized applications and validates transactions through its protocols.

Tokens, on the other hand, are better suited for cases where you want to create a specific ecosystem with particular functions — whether to validate transactions, power smart contracts, or guarantee usage rights.

Summarizing the key differences

Coins are native to their own blockchains and primarily function as money. Tokens are built on existing blockchains and can serve various functions beyond payment. The choice between one or the other depends on your goal: if you want to create an independent monetary system, you need a coin with its own blockchain. If you want to leverage an established infrastructure for specific functions, tokens are the way to go.