Coins and Tokens Compared: Differences at a Glance

We generally divide cryptocurrencies into so-called tokens and coins. They can be transferred peer-to-peer, meaning from person to person. No intermediary, such as a bank, is necessary. This characteristic is also what connects coins and tokens.

Although the terms coin and token are often used interchangeably, there are clear differences in functionality and structure. In this article, we’ll explain what characteristics distinguish both types of cryptocurrencies, what types of tokens exist, and what similarities they still share.

Token, Coin, Altcoin, and Cryptocurrency: What’s What?

Terms like token, coin, and cryptocurrency are often used interchangeably in practice, even though there are sometimes significant differences between the individual concepts.

Coin, for example, is a term typically used for digital currencies (cryptocurrencies) and equally for altcoins. Altcoins, in turn, are strictly speaking all digital currencies except Bitcoin, as they are meant to be an alternative to the leading digital currency. However, so-called tokens are distinct from coins and cryptocurrencies.

What Are Coins?

Coins are digital currencies that function as a medium of exchange and store of value on blockchain platforms. Each cryptocurrency has its own blockchain. A specific characteristic of coins is their independence from external platforms. They use their own blockchain to verify and process transactions.

The main function of coins is to facilitate peer-to-peer transactions, often without the need for a central authority. A clear example of this is Bitcoin (BTC), the first and best-known cryptocurrency. Coins can be used to purchase goods, services, or as an investment vehicle.

Altcoins like DOGE, ETH, or LTC are also coins. These are the native cryptocurrency of their respective blockchain.

What Is a Token?

Tokens are digital assets that, unlike coins, are created on existing blockchain platforms. They therefore do not have their own blockchain and are thus dependent. Among other things, they use the security and consensus mechanism of the underlying blockchain to confirm transactions.

What they represent in detail is not precisely defined. However, it’s clear that you can compare a token to a kind of voucher that represents a specific economic good or asset. You’re essentially acquiring a type of share certificate that doesn’t necessarily have its own value, but can still have a specific price at which it’s traded due to demand.

Tokens can have diverse functions, including representing value or ownership, access to specific services, or participation in decentralized applications. Tokens are not necessarily considered independent currencies, but rather as a means of representing and managing digital values and rights. Examples of tokens are Uniswap (UNI), Aave (AAVE), or Chainlink (LINK). These tokens often serve as a means of payment within a decentralized application (dApp).

Difference Between Tokens and Coins

From a technical perspective, the distinction between tokens and coins is clearer. While every cryptocurrency, meaning the coins, has its own blockchain, this does not apply to tokens. Instead, it’s a characteristic feature that they can only exist based on a foreign blockchain. The prime example is certainly the Ethereum blockchain, as numerous tokens are generated via this platform, usually through so-called smart contracts.

The main difference between coins and tokens is that coins operate on their own independent blockchain and tokens depend on an existing blockchain. Coins are an essential component of their blockchain and represent the cryptocurrency in digital form. Tokens, in contrast, can represent a wide variety of values. Their properties are determined by so-called smart contracts.

The following table shows the most important differences between coins and tokens in direct comparison:

Criterion	Coin	Token
Own Blockchain	Yes, coins run on their own blockchain.	No, tokens are created on an existing blockchain.
Examples	Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Dogecoin (DOGE)	Uniswap (UNI), Aave (AAVE), Chainlink (LINK), USD Coin (USDC)
Main Function	Coins usually serve as the native currency of a blockchain.	Tokens can represent rights, values, access, or functions within an ecosystem.
Dependency	Coins are directly connected to their own blockchain.	Tokens depend on the underlying blockchain, for example Ethereum.
Technical Creation	Coins are created through the operation of their own blockchain and its consensus mechanism.	Tokens are usually created via smart contracts.
Transaction Fees	Fees are paid in the native coin of the blockchain.	For token transactions, the native coin of the underlying blockchain is usually required.
Typical Use	Payments, store of value, staking, or paying network fees.	DeFi, governance, stablecoins, NFTs, digital securities, or access to specific services.
Simple Example	ETH is the coin of the Ethereum blockchain.	UNI is a token created on Ethereum.

How Are Tokens Created? ERC-20 and ERC-721

The most well-known blockchain platform for creating tokens is Ethereum. This is usually done via a smart contract. This can be used to define or adjust the rules and properties of the token. The ERC-20 and ERC-721 standards have become particularly established.

ERC-20 Tokens

ERC-20 tokens are a type of digital token based on the Ethereum blockchain. They were created according to the so-called ERC-20 standard. ERC stands for Ethereum Request for Comments. This establishes a set of rules and functions that a token must fulfill to function smoothly within the Ethereum ecosystem.

Among the largest cryptocurrencies by market capitalization, you’ll find many ERC-20 tokens. The standard is popular because it enables interoperability between different applications and platforms. Additionally, ERC-20 tokens use uniform methods for transfers, balance queries, and other basic actions. This allows developers to work with them easily and integrate them into dApps (decentralized applications).

Examples include the stablecoin Tether (USDT) or Chainlink (LINK).

ERC-721 Tokens (NFTs)

ERC-721 tokens are a special type of Non-Fungible Token (NFT). They are created on the Ethereum blockchain according to the ERC-721 standard. Unlike ERC-20 tokens, which are interchangeable, ERC-721 tokens are unique and represent individual digital assets.

Each ERC-721 token has a unique identification number and properties that distinguish it from others, making them ideal for representing unique digital objects such as digital artworks, collectibles, virtual land, and more.

These tokens make it possible to trace the origin and entire transaction history of an object on the blockchain. This creates trust and integrity in the realm of digital assets.

What Types of Tokens Are There?

Although tokens could theoretically be distinguished by a variety of different categories, some token types have become established into which we could classify nearly every cryptocurrency. Knowledge of the different types is important in several respects. On one hand, investors naturally have different preferences when it comes to risk tolerance and expected returns. Additionally, there are legal frameworks to consider.

Utility Tokens

As the name utility token suggests, this area is about a specific purpose or special functionality. The English term “utility” indicates this. Utility tokens grant access rights to specific functions or services within a platform. Unlike security tokens, there is no profit participation or legal claims through owning the tokens. It serves practical purposes within the respective ecosystem.

To date, these tokens are particularly sought after in the blockchain world and are most commonly used. An example is football clubs that offer fans special deals or enable them to participate in votes through utility tokens.

Security Tokens

Security tokens are essentially a possible variant of a digital security, which is why the name addition “security” for “security” emerged in the market. Security tokens are digital representations of a financial instrument on a blockchain, such as stocks, bonds, or investment fund shares. Investors have the opportunity for profit participation. Therefore, they are also subject to securities law.

Buyers and thus holders of such tokens receive a claim to certain services in return for their investment. Participation in profits after a successful ICO and market launch of the companies is one possibility. Authorities now set high entry barriers for offerings of this token class. Many countries, as with stocks, require the so-called “prospectus obligation.” Providers are required to present risks in particular detail.

Since the introduction of the MiCA regulation in the EU, there is for the first time a unified regulatory framework that also covers security tokens.

Stablecoins

Stablecoins are tokens pegged to one or more real-world assets. This link to fiat money, gold, or other assets is intended to provide price stability. The best-known examples are Tether (USDT) and USD Coin (USDC), both pegged to the US dollar.

In Europe, the MiCA regulation has created clear rules for stablecoins. Tether (USDT) was delisted from most regulated EU exchanges because it does not meet the requirements for e-money tokens. Instead, European platforms rely on MiCA-compliant alternatives like USDC and EURC from Circle.

Stablecoins have evolved from a pure trading tool to serious infrastructure for digital payments. Companies are increasingly using them for cross-border payments and treasury management.

Commodity Tokens

Commodity tokens, like security tokens, represent an existing asset. However, while a security token can represent any type of asset, commodity tokens are limited to commodities (trade goods). These include assets like gold, oil, or coffee. A well-known example is PAX Gold (PAXG), where each token represents one troy ounce of gold.

Governance Tokens

Governance tokens give their holders voting rights in decisions about the further development of a protocol. The more tokens you hold, the greater your influence on votes. Well-known examples are Uniswap (UNI), Aave (AAVE), and Maker (MKR). Governance tokens play a central role in the decentralized governance of DeFi protocols.

What Are Tokens Used For?

Tokens are usually issued to investors in the course of so-called Initial Coin Offerings (ICO). The interested investor invests money in the company, which raises capital through the ICO. In return, they receive the tokens, which certify a specific right. Whether these can ever assume a realistic value naturally depends primarily on demand, which in turn is strongly tied to the company’s development.

Beyond ICOs, tokens are now used in numerous other areas:

• DeFi (Decentralized Finance): Tokens enable lending, borrowing, and decentralized trading without banks.
• Gaming and Metaverse: In-game currencies and digital items are represented as tokens.
• Tokenization of Real-World Assets (RWA): Real estate, bonds, and other financial products are represented as tokens on the blockchain. This area is growing rapidly and is being driven by major financial institutions.
• Digital Identity: Tokens can be used to verify identities and permissions.

Conclusion

The main difference between coins and tokens lies in the blockchain: coins operate their own, tokens depend on an existing blockchain. Coins primarily serve as digital currency, tokens can represent a wide variety of values and rights.

Among tokens, we distinguish between ERC-20 (fungible tokens) and ERC-721 (Non-Fungible Tokens, meaning non-fungible tokens). The most important token types are utility tokens, security tokens, stablecoins, commodity tokens, and governance tokens.

You can buy both coins and tokens on crypto exchanges. It’s important to choose a trustworthy provider. Check out our crypto exchange comparison.