People use “coin” and “token” interchangeably, but they’re actually different things. Here’s the distinction.
The Simple Rule
Coin = has its own blockchain Token = lives on someone else’s blockchain
graph TD subgraph own["Coins — Own Blockchain"] BTC["Bitcoin on Bitcoin chain"] ETH["Ether on Ethereum chain"] SOL["SOL on Solana chain"] end subgraph rent["Tokens — Borrow a Blockchain"] UNI["Uniswap token on Ethereum"] LINK["LINK on Ethereum"] SHIB["SHIB on Ethereum"] end
The Friend Group Analogy
Think of it like housing:
Coin = owning a house. You built the whole thing — foundation, walls, roof, plumbing. Bitcoin built its own blockchain from scratch. Ethereum built its own. They own and maintain the entire infrastructure.
Token = renting an apartment. You’re living in someone else’s building. Uniswap didn’t build a blockchain — they deployed their token on Ethereum’s blockchain. Way easier than building from scratch, and Ethereum’s security protects them too. They pay “rent” in the form of gas fees.
Some projects start as tokens and later build their own blockchain. Crypto.com did this — started as a token on Ethereum, got big enough, and moved to their own chain. Like renting an apartment, saving up, and eventually buying a house.
Wrapped/Pegged Tokens
Here’s a weird one. You can have a token that represents a coin from a different blockchain. For example, “Binance Peg Ethereum” is essentially ETH that lives on the Binance chain instead of the Ethereum chain.
Think of it like a gift card. You have a ₹1000 Amazon gift card — it’s not actual cash, but it represents ₹1000 and is redeemable for that value. Similarly, Binance Peg ETH represents the value of real ETH, just on a different network (often with cheaper transaction fees).
The mechanism for how these stay pegged to the original’s value varies by system — some use reserves, some use algorithms. That’s a rabbit hole for another day.
Types of Tokens
Not all tokens do the same thing. Here are the main categories:
mindmap root((Token Types)) Platform Uniswap UNI Used within a platform Often gives voting rights Security Represents real assets Like digital shares Property, gold, stocks Utility Access to services BAT for Brave browser ads Like coupons or credits Governance Vote on project decisions More tokens = more votes Like shareholder voting Transactional Designed for payments Fast and cheap transfers
Platform tokens — You invest in a platform like Uniswap, you get UNI tokens. These might let you vote on future changes. Like being a shareholder in a startup.
Security tokens — Represent real-world assets. Owning a security token for a building is like owning a share of that building. These are regulated like actual securities in most countries.
Utility tokens — Think of them as coupons for a specific service. BAT (Basic Attention Token) lets you pay for advertising on the Brave browser. You can’t do much else with it outside that ecosystem.
Governance tokens — Let you vote on how a project evolves. The more tokens you hold, the more voting power you get. It’s like a co-op society where your vote weight depends on how many flats you own.
Transactional tokens — Built specifically for fast, cheap payments. Like a digital version of UPI but on blockchain.
Why Does This Matter?
Understanding the difference helps you evaluate projects:
- A coin with its own blockchain has more control but needs to secure its own network
- A token on Ethereum benefits from Ethereum’s security but depends on it
- The type of token tells you what you’re actually buying — a vote, a coupon, a share, or just a payment method
Next up: if you own coins, you can put them to work through staking.