{"id":853192,"date":"2024-02-27T14:22:55","date_gmt":"2024-02-27T12:22:55","guid":{"rendered":"https:\/\/www.etoro.com\/?page_id=853192"},"modified":"2025-11-03T15:13:56","modified_gmt":"2025-11-03T13:13:56","slug":"coins-vs-tokens","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/crypto\/coins-vs-tokens\/","title":{"rendered":"Coins vs Tokens: What’s the Difference?"},"content":{"rendered":"\n

There are two kinds of digital assets in cryptocurrency: coins and tokens. Coins operate on their blockchain network and are mainly intended as digital currencies. Tokens are built on an existing blockchain and are used to execute financial transactions.<\/p>\n\n\n\n\n\n\n

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The cryptocurrency market can be a complex space to navigate, with its own dictionary of terms. It\u2019s important to understand two common terms \u2014 coins and tokens \u2014 before investing.<\/p>\n\n\n\n

Coins and tokens serve distinct functions in the cryptocurrency ecosystem<\/strong>. While both can be bought and sold, they\u2019re different in their purpose and functionality<\/strong>.<\/p>\n\n\n\n

Coins operate on their own blockchain network and are used as a payment method. Cryptocurrency tokens can also be used as a method of payment, but operate on an existing blockchain.<\/mark><\/p>\n\n\n\n

What is a cryptocurrency coin?<\/h2>\n\n\n\n

A cryptocurrency coin is one that is native to its very own blockchain. It is a virtual currency that operates on a blockchain network and can be utilised as a payment method of payment<\/strong>.<\/p>\n\n\n\n

One essential feature of a cryptocurrency coin is that it has its own independent blockchain<\/strong>. This means that its value is specific to the network it operates in and the rules that govern it. <\/p>\n\n\n\n

These coins use complex algorithms to secure and regulate the transfer of funds<\/strong> and record transactions on the blockchain. They\u2019re validated by miners, who receive rewards in the form of coins<\/strong>.<\/p>\n\n\n\n

Bitcoin<\/a>, the original cryptocurrency, is a good example of a cryptocurrency coin. It exists as a unit of value on its own independent ledger. Because it\u2019s limited in its supply, its value is influenced by supply and demand. <\/p>\n\n\n\n

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Tip:<\/strong> Cryptocurrencies are usually considered as high-risk investments. Each investor should understand how much risk they can accept, taking into account their whole investment portfolio.<\/p>\n<\/div><\/div>\n\n\n\n

Several other crypto coins, like Bitcoin Cash, are built and supported by Bitcoin\u2019s rules. <\/p>\n\n\n\n

That\u2019s why Bitcoin is regarded as \u201c<\/strong>digital gold<\/strong><\/a>\u201d<\/strong>. It is the most premium crypto asset on the market, dominating the space like gold does in the traditional market. <\/p>\n\n\n\n

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Tip:<\/strong> Crypto coins, such as Bitcoin, aim to offer an alternative to conventional banking.<\/p>\n<\/div><\/div>\n\n\n\n

Besides Bitcoin, thousands of other crypto assets exist.<\/strong> These are called altcoins. Many of these altcoins are built to operate via their own unique blockchain and protocol. <\/p>\n\n\n\n

The most popular altcoin is Ethereum<\/strong>, which has its proprietary proof-of-stake<\/a> (PoS) blockchain<\/e-tip>. <\/p>\n\n\n\n

Another example is XRP<\/strong><\/a>, which creates a more affordable way to process cross-border payments<\/strong> by acting as a bridge between fiat currencies and crypto assets using blockchain technology<\/e-tip>.<\/p>\n\n\n\n

However, while crypto assets are popular investment alternatives to financial instruments like stocks<\/a> and bonds, they can be much more volatile.<\/p>\n\n\n\n

What is a cryptocurrency token?<\/h2>\n\n\n\n

A crypto token is a virtual currency token or unit of value that\u2019s created and managed on top of an existing blockchain. It can represent assets, services, or even voting rights within a specific ecosystem.<\/mark><\/p>\n\n\n\n

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Despite their similarity to crypto coins, tokens do not have their own blockchain and are instead built on top of an existing one<\/strong>. Although tokens can act as a form of payment similar to coins, their primary purpose is to be used within a blockchain platform\u2019s wider ecosystem. <\/p>\n\n\n\n

Tokens are usually issued through initial coin offerings<\/a> (ICOs)<\/e-tip>. In other cases, these tokens are offered through airdrops and can be used to reward contributors, foster user interaction,<\/strong> and encourage innovation within a network\u2019s community. <\/p>\n\n\n\n

One of the biggest benefits of tokens is their versatility. They can represent anything from assets like real estate or gold to loyalty points and in-game currency. They also offer more functionality than just being a typical store of value<\/strong>. <\/p>\n\n\n\n

Common cryptocurrency platforms<\/h3>\n\n\n\n

The most common platform for cryptocurrency tokens is Ethereum<\/a>. Typically, a cryptocurrency token created using the Ethereum platform is called an ERC20 token<\/a>. Such tokens can be stored and distributed between Ethereum addresses. <\/p>\n\n\n\n

Most cryptocurrency tokens are designed to power decentralized applications (dApps)<\/e-tip><\/strong> on the blockchain. <\/p>\n\n\n\n

A crypto token is typically simpler to create than a cryptocurrency coin. A developer can simply follow a template approach on their chosen blockchain, like Ethereum or the growing NEO platform<\/strong>, to create a new token. <\/p>\n\n\n\n

You also don\u2019t need a new blockchain to create a new token. For example, all ERC-20 tokens are compatible with the Ethereum blockchain. Coins and tokens can be stored together<\/strong> in the same compatible crypto wallet<\/e-tip><\/a>. <\/p>\n\n\n\n

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Tip:<\/strong> Investors should avoid making decisions based on emotions and online hype. Take the time to do proper research and analysis of a new asset before investing.<\/p>\n<\/div><\/div>\n\n\n\n

How do the use cases of coins and tokens differ?<\/h2>\n\n\n\n

Although coins and tokens both operate on blockchain technology, they have different use cases. Coins are slightly more complex and versatile than tokens<\/strong>, whereas tokens can be considered to be more accessible. <\/p>\n\n\n\n

Coins operate on their own blockchain<\/strong>, and their creators need to be experts in building blockchain. <\/p>\n\n\n\n

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Use Cases: Coins<\/strong><\/th>Explanation<\/strong><\/th><\/tr><\/thead>
Store of value<\/strong><\/td>Crypto coins such as Bitcoin aim to offer an alternative to conventional banking<\/strong>. By providing decentralized transactions, Bitcoin has circumvented the need for centralized ledgers, becoming a reliable store of value. 

Each crypto coin has their own blockchain<\/strong>, which means that each transaction is recorded and verified on their respective blockchains.<\/td><\/tr>
Digital cash<\/strong><\/td>Crypto coins are designed to be used as a medium of exchange in transactions and are generally accepted by merchants and businesses <\/strong>as a mode of payment.<\/td><\/tr>
International remittances<\/strong><\/td>Some crypto coins are designed to make processing real-time international transactions easier, as payments do not require clearance<\/strong> or centralized approval.<\/td><\/tr><\/tbody><\/table><\/div><\/div><\/figure>\n\n\n\n

Cryptocurrency tokens operate on existing blockchain networks and, as a result, are far easier to create than crypto coins. Tokens are extremely popular due to their accessibility<\/strong> and functionality that spans from smart contracts to super computers.<\/p>\n\n\n\n

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Use Cases: Tokens<\/strong><\/th>Explanation<\/strong><\/th><\/tr><\/thead>
Smart contracts<\/strong><\/td>Crypto tokens are created using smart contracts on pre-existing blockchains such as Ethereum. A smart contract is a protocol that automates transactions when mutually-agreed conditions of contracts are met. <\/strong>

Smart contracts could be transformational for industries such as the property sector, for example, by automating and decentralizing property sales.<\/td><\/tr>
dApps<\/strong><\/td>Tokens represent a specific asset or utility and are not intended to be used as a currency. Ethereum-based crypto tokens have become integral to dApps<\/strong>, open-source apps ranging from games to  social media platforms to lending platforms.<\/td><\/tr>
Supercomputer platforms<\/strong><\/td>Golem is the world\u2019s first decentralized supercomputer<\/strong>, powered exclusively by both data centers and individuals\u2019 laptops and desktops around the world. Ethereum-based crypto tokens help contribute to this.<\/td><\/tr>
Digital user identities<\/strong><\/td>Certain tokens can be used to verify access to digital services <\/strong>such as age-restricted websites and software.<\/td><\/tr><\/tbody><\/table><\/div><\/div><\/figure>\n\n\n\n

Utility token vs. security token<\/h2>\n\n\n\n

When cryptocurrency tokens are created, they are issued to users through an initial coin offering (ICO), similar to an initial public offering (IPO) on the stock markets. ICOs offer to investors crypto tokens in exchange for an initial investment<\/strong> in a blockchain project.<\/p>\n\n\n\n

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There are two different types of crypto tokens that exist in the ICO sphere \u2014 utility tokens and security tokens<\/a>.<\/p>\n\n\n\n

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Utility Token<\/th>Security Token<\/th><\/tr><\/thead>
Designed to provide access to a specific product or service<\/strong>. For example, a utility token might be used to pay for access to a new blockchain-based video game, or to buy and sell tickets on a resale platform.<\/td>Considered a digital asset in its own right<\/strong>, and its value is influenced by the value of its linked external asset.

Security tokens can, therefore, be considered the crypto version of shares in a digital company. Buying a security token means you\u2019re investing in a project or company<\/strong>, and you expect to receive a return on that investment.<\/td><\/tr>
Utility tokens<\/strong> are designed to encourage interaction between users and a company\u2019s crypto services.<\/td>Designed to offer users ownership<\/strong> of a digital company, acting as a form of investment.<\/td><\/tr>
Utility tokens are typically not considered securities<\/strong> and are therefore subject to less stringent regulations. They\u2019re often seen  as a speculative investment, with the potential for high returns if the underlying project is successful.<\/td>Security tokens<\/strong> are subject to securities laws<\/strong> and must comply with strict regulatory requirements. They\u2019re typically viewed as a more stable investment with more predictable returns.<\/td><\/tr><\/tbody><\/table><\/div><\/div><\/figure>\n\n\n\n

Defining a security token with the Howey Test<\/h3>\n\n\n\n

The Howey Test<\/strong> is a legal framework used to determine whether an investment is a security or not, and includes a number of criteria. <\/p>\n\n\n\n

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  1. It must be derived from an investment of fiat currency.<\/li>\n\n\n\n
  2. The investment must support a \u2018common enterprise\u2019.<\/li>\n\n\n\n
  3. The investment is made with an expectation of future profit.<\/li>\n<\/ol>\n\n\n\n

    If a token satisfies these criteria, it\u2019s considered a security token, and its sale would be subject to the regulations of the Securities and Exchange Commission (SEC)<\/strong>. <\/p>\n\n\n\n

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    Tip:<\/strong> When analyzing a new investment asset, use reliable sources and take the time to understand its underlying value. Consider how the specific asset may impact your whole portfolio.<\/p>\n<\/div><\/div>\n\n\n\n

    Popular cryptocurrency coins and tokens<\/h2>\n\n\n\n

    To find the most suitable investment opportunities for your trading strategy, it\u2019s crucial to study each crypto asset<\/strong>, especially the most popular crypto coins and tokens.<\/p>\n\n\n\n

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    When it comes to coins, the big hitters are Bitcoin and Ethereum<\/strong>. These have been the two most famous ones for the past 10 years, and they have probably been responsible for most of the adoption in the cryptocurrency industry. <\/p>\n\n\n\n

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    Typically, a cryptocurrency token created using the Ethereum platform is known as an ERC20 token.<\/p>\n<\/div>\n\n\n\n

    In addition to those, there are also stablecoins like Tether (USDT) and USD Coin (USDC)<\/strong>, the Binance Coin (BNB), and meme coins like Dogecoin (DOGE) and Shiba Inu (SHIB). These crypto assets have been gaining traction and are now fundamental to a large majority of crypto investment strategies.<\/p>\n\n\n\n

    Moreover, you will probably have found Cardano and Polygon<\/strong> in your research. These two platforms have a considerable amount of projects already built under their ecosystem and keep growing their following every day. <\/strong><\/p>\n\n\n\n

    Final thoughts<\/h2>\n\n\n\n

    Understanding the distinctions between coins and tokens is essential for cryptocurrency investors. By recognizing the different use cases and functionalities of these two types of digital assets, individuals can make smarter investing decisions<\/strong>. <\/p>\n\n\n\n

    To learn more about blockchain technology and start investing in cryptocurrency coins and tokens, join the eToro Academy<\/a>.<\/p>\n\n\n\n\n\n

    FAQs<\/h2>\n\n\n\n
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    Are cryptocurrency coins legal in the US? <\/dt>
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    Yes, cryptocurrency coins<\/a> are legal in the United States of America. However, they are not considered legal tender. This means that you can own and transact cryptocurrencies, but there is no law requiring them to  be accepted by enterprises operating in the country. Moreover, they are not accepted as means of payment for governmental and federal taxes.<\/p>\n<\/dd><\/div>\n\n\n\n

    Can I use cryptocurrency tokens in other blockchains?<\/dt>
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    It\u2019s not possible to use one cryptocurrency tokens in different blockchains<\/a>, but there are ways to get around this. Common practices include \u201cbridging\u201d the tokens to the new blockchain or \u201cswapping\u201d the tokens using an exchange. When you bridge, you are transacting the two different tokens at the same time, directly to each wallet. When you swap, you are sending the tokens to an AMM pool, which in turn will send the correct tokens to the new wallets.<\/p>\n<\/dd><\/div>\n\n\n\n

    What is the difference between crypto coins and crypto tokens?<\/dt>
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    Crypto coins are standalone currencies with their own blockchain networks and are used as a medium of exchange. Examples of crypto coins include Bitcoin<\/a>, Litecoin<\/a>, and Ethereum. Crypto tokens are built on top of an existing blockchain network, such as Ethereum, and represent a utility or asset. They are used in decentralized applications, or dApps, as a means of payment or for accessing certain functions within an ecosystem.<\/p>\n<\/dd><\/div>\n\n\n\n

    Can I convert crypto coins to crypto tokens?<\/dt>
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    Yes, you can convert some crypto coins to tokens, and vice versa, on certain exchanges that support these transactions. For example, if you have Ethereum<\/a>, you can exchange it for a token that is built on the Ethereum platform. Different tokens have different rules for conversion, so you\u2019ll need to check with the specific exchange.<\/p>\n<\/dd><\/div>\n\n\n\n

    Can I buy goods and services with cryptocurrency tokens?<\/dt>
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    It may be harder to buy goods and services with cryptocurrency<\/a> tokens, but it all depends if the person who is selling to you accepts and it does not violate any regulations of the countries you are in. Moreover, you can buy digital assets from the projects that were created within the native blockchain of your tokens.<\/p>\n<\/dd><\/div>\n<\/dl>\n\n\n\n\t\t