Coins vs. tokens

A coin is the built-in currency of its own blockchain. A token is created by a smart contract on a blockchain that already exists. The difference affects fees, risks and several common mistakes.

Coins

Bitcoin is the coin of the Bitcoin blockchain. Ether is the coin of Ethereum. A coin has two features:

It is created by the network's own rules, through mining or staking.
It pays the network's transaction fees.

Tokens

A token is an entry in a smart contract. The contract keeps a list of which address owns how many units and follows rules for moving them.

On Ethereum, most tokens follow a shared standard called ERC-20, proposed in November 2015. Because they all behave the same way, any wallet or exchange that supports one ERC-20 token can support them all.

ERC-20 tokens are fungible: every unit is identical to every other, like coins of the same value. A second standard, ERC-721, covers non-fungible tokens, or NFTs. Each NFT is unique, which suits tickets, collectibles and certificates.

What tokens represent

A token can stand for almost anything its creator decides:

A dollar held in reserve (a stablecoin, covered in Lesson 10)
A vote in how a project is run
A share of a pool of other assets
Points, access rights, or nothing at all

A token is only as good as the contract and the people behind it. Creating one takes minutes and costs very little, which is why there are millions of them.

Why the difference matters to you

You need the coin to move the token. Fees on Ethereum are paid in ETH. If your wallet holds a dollar token but no ETH, you cannot send it.

The same name can exist on several networks. A popular token may be issued on Ethereum and on other chains. These are separate versions. Sending one to an address on the wrong network can lose it, as Lesson 33 explains.

Names can be faked. Anyone can create a token with the same name and symbol as a well-known one. What identifies a token is its contract address, a long code you can check on the issuer's official site or a block explorer.

Tokens can get stuck. A token sent to a contract that was not built to handle it can be lost permanently.

Extra layers of risk

A coin depends on its own network. A token depends on three things: the network it sits on, the code of its contract, and whoever can change or control that contract. Some token contracts let the issuer freeze balances or create new units at will.