What does Token mean? The fundamental difference from Coin and an investment guide

The Evolution of Cryptocurrency Naming: Why the Concept of Token Emerged

In the early stages of blockchain development, cryptocurrencies were almost exclusively called Coins, such as Bitcoin (BTC), Litecoin (LTC), Dogecoin (DOGE), etc. At that time, the term Token did not exist, so investors would not confuse the two. However, since the advent of Ethereum, the blockchain ecosystem has undergone a fundamental change. After Ethereum introduced the ERC-20 standard, anyone could issue their own tokens on its platform, leading to the interchangeable use of Coin and Token.

Today, in Chinese, both are often translated as “tokens” or “cryptocurrencies,” which has instead caused more confusion. Many investors cannot distinguish their substantive differences, and even confuse the risk characteristics of different assets.

In-Depth Analysis of the Meaning of Token: Definition, Features, and Issuance Mechanisms

The core definition of a Token is: a cryptographic unit representing specific rights, certificates, or digital assets, which can be traded, transferred, and exchanged on the corresponding blockchain network.

The fundamental difference from Coin is that a Token does not have its own independent blockchain but is built on an existing blockchain ecosystem. For example, MATIC operates on the Ethereum blockchain, and SAND is also issued based on Ethereum. They are both Tokens, not Coins.

From the perspective of issuance volume, Ethereum is the most active public chain for Token issuance. To date, there are tens of thousands of Token types on the platform, covering various application fields such as DeFi, Layer-2 scaling solutions, NFT-related tokens, etc. (e.g., APE, SAND, LINK, UNI).

What Types of Tokens Are There? Their Functional Roles

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

Payment Tokens
Primarily aimed at enabling secure, efficient, and low-cost payment functions; stablecoins are a typical example. These Tokens aim to reduce transaction costs and improve transfer efficiency.

Utility Tokens
Provide access passes to various application ecosystems; most ERC-20 tokens on Ethereum fall into this category. Utility Tokens grant holders specific network permissions or service usage rights.

Asset Tokens
Represent rights to a project or asset; holding such tokens means becoming a participant in the project and enjoying the value appreciation brought by the token. This is similar to stocks, but it’s important to note that Tokens in the crypto space usually do not carry company ownership or dividend rights.

Practical Complexity: In theory, Token classification is straightforward, but in reality, a single Token often exhibits two or even three of these attributes simultaneously, making precise classification challenging.

The Fundamental Difference Between Coin and Token and Its Impact on Investment Decisions

Having an independent blockchain is the core feature of a Coin. Bitcoin runs on the Bitcoin blockchain, and Ether runs on the Ethereum blockchain. They are the native assets of their respective networks, supporting the entire ecosystem.

Tokens, on the other hand, are dependent on existing blockchains. This fundamental difference leads to clear distinctions in ecosystem applications: Coins usually carry more basic infrastructure functions, while Tokens mainly focus on application-layer innovation.

Investment Perspectives: Advantages and Disadvantages of Token and Coin

Treat Coin as “public chain-based cryptocurrency,” and Token as “application-based cryptocurrency.” The former focuses on infrastructure development to solve the underlying issues of blockchain; the latter is built on this foundation, providing various applications and services directly.

Scalability Advantage: Compared to Coins, Tokens have a broader application and service space, and are easier to implement. The value of Coins is limited to optimizing infrastructure; if the direction is wrong, it’s often hard to recover (e.g., the current state of Quantum Chain, Bifurcated Chain). Tokens can flexibly iterate service models, such as MakerDAO launching RWA (Real-World Assets) to expand application scenarios.

Volatility Difference: Token prices tend to be more volatile than Coins. The price swings of UNI, SNX, MKR significantly exceed those of BTC and ETH, especially during bull markets. This creates more opportunities for short-term traders but also increases the risk of liquidation. Therefore, investing in Tokens requires more cautious risk management strategies.

The Two Main Investment Methods for Tokens

Method 1: Spot Trading

Spot trading involves full payment for actual assets. For example, if the current price of UNI is $3, paying $3 will get you 1 UNI, with full ownership and disposal rights of the asset.

Risk Prevention Tip: When trading spot, beware of fake coins with the same name. Some teams copy the name of well-known Tokens and issue seemingly identical but worthless tokens. If you buy these by mistake, they may not be tradable on exchanges at all, making it impossible to cash out. Always verify the token’s contract address via the official website or blockchain explorer before trading.

Method 2: Margin Trading

Margin trading does not require full capital; only a portion of funds as margin is needed. For example, using 10x leverage to go long on UNI at $3, only $0.3 is needed to establish a position of 1 UNI.

Key Difference: Most margin trading (CFDs, U-based contracts, etc.) does not involve actual token delivery, thus avoiding fake coin risks in spot trading. However, the leverage’s double-edged sword nature can lead to higher gains but also increased liquidation risk.

Risk Control Advice: Due to the high volatility of Tokens compared to Coins, it is recommended that leverage not exceed 10x. Newly issued tokens can have daily fluctuations of 20-30%, far exceeding BTC’s usual 10% volatility, so always stay alert to liquidation risks. Regardless of the trading method, choosing a secure, regulated trading platform is the top priority for investing in Tokens.

Final Key Point in Understanding the Meaning of Token

As an important innovation in the blockchain ecosystem, Tokens are fundamentally application assets. Compared to Coins’ infrastructure positioning, Tokens offer richer and more flexible application possibilities. However, due to their high volatility and diverse use cases, investors need more comprehensive knowledge and risk awareness. Whether in spot or margin trading, a deep understanding of Token characteristics and the formulation of scientific investment strategies are essential to achieve long-term stable returns in crypto asset investments.