Must-read for token investment: Understand the difference between Token and Coin?

In the world of cryptocurrencies, the terms Token and Coin are often mentioned, and many people are confused about the difference. In the early days, these two concepts had clear boundaries—Bitcoin, Litecoin, and others were called Coins, and there was no confusion. But since Ethereum emerged, the landscape has changed—Coin and Token started to be used interchangeably, and in Chinese, both are translated as 代幣 (tokens), leading investors to be puzzled. Today, we will thoroughly clarify what these two are, how they differ, and how to invest.

What exactly is a Token?

Token, simply put, is a digital asset built on an existing blockchain, representing a specific right, certificate, or value. They need to be attached to a public chain to exist and do not have their own dedicated blockchain.

Ethereum’s launch of the ERC-20 token standard in 2015 directly changed the entire industry. Since then, anyone can issue their own Token on Ethereum, leading to a surge in Token numbers. Now, Ethereum has become the public chain with the largest Token issuance, hosting thousands of Token projects.

To understand what a Token is, a simple way is—non-public chain tokens. This includes DeFi project tokens, Layer-2 solution tokens, NFT-related tokens (like APE, SAND), etc., all fall under the category of Tokens.

Tokens are divided into three categories, each with its own way of playing

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

Payment Tokens: Mainly aimed at enabling secure, efficient, low-fee payments; stablecoins are a typical example.

Utility Tokens: Provide access passes for various applications. Most ERC-20 tokens on Ethereum belong to this category, used by holders to access certain applications or services.

Asset Tokens: Represent rights to a certain project, and holders are akin to participants in the project, sharing in its growth. However, note that holding such Tokens in the crypto space usually does not mean ownership of the project nor dividend rights.

In reality, a Token often has two or even three attributes simultaneously. The classification is not always so clear-cut.

The fundamental difference between Token and Coin

The core difference is: Coins have their own blockchain, Tokens do not.

Bitcoin runs on the Bitcoin blockchain, ETH runs on Ethereum; they are native assets of these networks. Tokens, on the other hand, are different—they are built on someone else’s blockchain, most of which run on Ethereum.

This fundamental difference leads to a series of derivative differences:

Since Tokens do not have their own blockchain, their ecosystem applications are usually less abundant than Coins, and they often cannot support independent applications. This is also why some Token projects eventually seek to upgrade to become independent public chains.

Should you invest in Tokens or Coins? How to choose?

Honestly, this is not a question of either/or. Tokens and Coins are actually complementary—Coins are the infrastructure layer, Tokens are the application layer.

Coins are used to build and optimize the infrastructure. If they fail, there’s often no way to recover, like Quantum Chain (QTUM) or Bytom (BTM). The value of Tokens lies in providing various applications and services; if they fail, they can adjust direction or launch new products. MakerDAO’s RWA business is an example.

The most critical difference is volatility. Tokens tend to be much more volatile than Coins, especially during bull markets. The price swings of UNI, SNX, MKR are often several times those of BTC and ETH. This offers more opportunities for short-term traders but also entails higher risks.

How to invest in Tokens? Two methods to choose from

Method 1: Spot Trading

Spot trading involves actual buying and selling of Tokens. For example, if UNI is currently priced at $3, buying 1 UNI for $3 means you truly own that Token and can transfer or sell it at any time.

But beware of a pitfall—fake tokens with the same name. If a Token named ABC is expensive, someone might issue a counterfeit ABC that is worthless and not listed on exchanges. Buying such a token would be a loss. Therefore, before spot trading, always verify the token’s contract address via the official website or blockchain explorer.

Method 2: Margin Trading

Besides spot trading, you can also trade Tokens on margin. This method usually does not involve actual ownership of the Token and has a completely different risk profile.

Margin trading involves non-full position trading, such as using 10x leverage to go long on UNI. If the price is $3, with 10x leverage, controlling a position of 1 UNI only costs $0.3. If using derivatives or USDT-margined contracts, you don’t need to hold the actual UNI.

This method offers high capital efficiency but also significantly increases risk. Due to the high volatility of Tokens, especially with leverage, it’s easy to get liquidated. It’s recommended to keep leverage below 10x, and be extra cautious with emerging tokens, as their daily volatility can far exceed BTC.

Things you must know before trading Tokens

Whether doing spot or margin trading, the first thing is to choose a safe, compliant trading platform. A trustworthy platform is the starting point of your investment journey. Never choose unregulated exchanges just to save trouble.

Second, fully understand the high volatility of Tokens. Compared to Coins, Token prices are often more volatile, which accelerates declines in bear markets and quickly attracts buy-in in bull markets. Proper position management and risk control strategies are more important than anything else.

Finally, do your homework. Before buying any Token, understand its fundamentals, team background, project progress. Don’t follow the crowd blindly. Opportunities are abundant in the market, but rational judgment is what’s missing.