The term “token” is widely used in crypto discussions, but it is often misunderstood. Not all digital assets are tokens, and understanding the distinction between coins and tokens helps clarify how crypto systems function and how they are regulated.
Coins vs. Tokens
A coin is native to its own blockchain. Bitcoin, for example, exists only on the Bitcoin network. Ether exists on the Ethereum blockchain.
A token, by contrast, is created on top of an existing blockchain using smart contracts. Tokens rely on the underlying blockchain for security and transaction processing.
Why Tokens Exist
Tokens enable developers to build applications without creating an entirely new blockchain. They can represent:
- Access to a service
- Governance rights
- Ownership of digital or real-world assets
- Stable-value instruments such as stablecoins
This flexibility has driven innovation, but it has also introduced complexity and risk.
How Tokens Are Issued
Most tokens are created through smart contracts that define supply, transfer rules, and other properties. Some tokens are distributed through fundraising events, while others are earned through usage or network participation.
Regulators often focus on how tokens are marketed and sold, particularly when purchasers expect profits based on the efforts of others.
Why the Distinction Matters
Whether an asset is classified as a coin or a token can influence:
- Regulatory treatment
- Disclosure requirements
- Market access
Clear terminology helps investors and users better understand what they are interacting with.
Sources & References
- Ethereum documentation on token standards
- SEC guidance on digital assets
- Academic research on token economics
