What exactly does Token mean? What is the fundamental difference between it and Coin?

When it comes to cryptocurrencies, many people confuse two concepts: What does Token mean? How is it different from Coin? In the early days, major cryptocurrencies like Bitcoin, Litecoin, and Dogecoin were collectively called Coins. But since the advent of Ethereum, the terms Token and Coin have been used interchangeably, and in Chinese they are often translated as “tokens” or “cryptocurrencies,” leading investors to often confuse the two. Today, let’s delve into the meaning of Token, its classifications, the fundamental differences from Coin, and how to trade these assets.

What Does Token Mean: What Does It Actually Represent?

Token, translated into Chinese as pass, token, or coin, is essentially a virtual item representing specific rights, certificates, or digital assets that can be traded, transferred, and exchanged on its corresponding blockchain. In simple terms, Token is a form of asset built on an existing blockchain infrastructure.

After Ethereum launched the ERC-20 token standard in 2015, anyone could issue their own Token on it, which is why Ethereum currently has the largest issuance of Tokens among public chains. In contrast, Coins have their own dedicated blockchain, while Tokens are built on these public chains as application-layer assets.

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

Payment Tokens are mainly used for secure, efficient, low-cost payments; stablecoins are a typical example.

Utility Tokens provide access to various applications; ERC-20 tokens on Ethereum, such as UNI, LINK, and COMP, belong to this category.

Asset-backed Tokens are akin to equity certificates of projects, allowing holders to participate in governance and profit sharing. Although they generally do not confer company ownership, these tokens are widely used in DeFi and NFT fields.

The Fundamental Difference Between Token and Coin: A Clear Comparison

To fully understand the meaning of Token, it’s essential to compare it with Coin. The most fundamental difference is:

Coins have their own independent blockchain ecosystems—for example, Bitcoin runs on the Bitcoin blockchain, Ethereum on the Ethereum blockchain. They are the native assets of their respective networks. Tokens do not have their own blockchain; instead, they are application-layer assets built on existing blockchains.

Specific differences are as follows:

Investing in Tokens and Coins: Pros and Cons

So, is it more profitable to invest in Tokens or Coins? The answer is: Both have advantages and complement each other.

You can think of it this way: if Coins are the “infrastructure” for building the crypto ecosystem, then Tokens are the “application layer” built on top of it. The value of Coins is limited to optimizing the infrastructure; if they fail, it’s often hard to recover, like QTUM or BTM. Meanwhile, Tokens have a broader range of applications, and a failure of a single application does not necessarily affect the entire platform, such as MakerDAO, which can continue to develop new business directions.

More importantly, Token volatility is usually much higher than that of Coins. Daily fluctuations of UNI, SNX, MKR often exceed those of BTC and ETH, providing more opportunities for short-term traders but also higher risks. Many Tokens can see over 10x gains in a bull market, but also suffer brutal crashes.

How to Trade Tokens: Two Main Methods

Method 1: Spot Trading

Spot trading is the most straightforward—buy actual Tokens at current market prices and own the assets. For example, if UNI is priced at $3, paying $3 gets you one real UNI token.

But beware of fake tokens. Some projects issue tokens with the same name as well-known tokens but are worthless scams; after purchase, they may be impossible to sell. The simple way to avoid this is to verify the token’s contract address on the official website or blockchain explorers (like Etherscan) to ensure you’re buying legitimate tokens.

Method 2: Margin Trading

Besides spot trading, you can also trade Tokens with margin. This method does not involve actual token delivery but allows controlling larger positions with a small amount of collateral.

For example, using 10x leverage to go long on UNI, if UNI is priced at $3, you only need $0.3 to control one UNI position. Contracts for difference (CFD) and U-based perpetual contracts are typical modes. You don’t actually own UNI; profits and losses are settled based on price movements.

But a special reminder: Token volatility is inherently higher than Coins, especially in bull markets. Leverage should not exceed 10x, and riskier new tokens require cautious position sizing to avoid liquidation.

Basic Steps to Start Trading Tokens

Whether spot or margin trading, the general process is similar:

Step 1: Choose a Platform
Select a secure, regulated trading platform. Confirm it has proper licenses and robust fund security mechanisms.

Step 2: Register and Complete Verification
Provide basic information and pass identity verification (KYC) as required by the platform.

Step 3: Deposit Funds
Deposit funds into your trading account via bank transfer, e-wallet, etc.

Step 4: Search and Place Orders
Use the platform’s search bar to find your target Token (e.g., “UNI”), set your purchase amount, leverage (if applicable), stop-loss and take-profit levels, then confirm and submit the order.

Step 5: Manage Your Position
Monitor price movements continuously, adjust stop-loss and take-profit settings timely, and control risks.

Summary

Understanding the meaning of Token fundamentally involves recognizing its difference from Coin: the former is an application-layer token, while the latter is a native asset of the underlying blockchain. Investing in Tokens offers more innovation and volatility opportunities but also entails higher risks. Regardless of the trading method chosen, operating on reputable platforms, controlling leverage, and being vigilant against fake tokens are key to maintaining a stable and profitable crypto investment journey.