Learn / Beginner · Tokens and Stablecoins

What is a token, and how is it different from a coin?

Beginner · Tokens and Stablecoins · about 5 min read

A coin is the main digital money of its own blockchain. A token is a digital asset created on top of someone else’s blockchain. People often say “coins” for both, but the difference matters.

Coins

Bitcoin runs on the Bitcoin blockchain, ether on Ethereum and SOL on Solana. Each one is the native coin of its chain. It pays the fees on that network and rewards the people who keep it running.

Tokens

Tokens are created using the token tools of a chain that supports them, such as Ethereum or Solana, often through smart contracts. They do not need a blockchain of their own. A token can stand for many things: a dollar-linked currency, a vote in a project, a point in a game, or a share of something.

Why it matters

When you send a token, you usually pay the network fee in that chain’s own coin. To send a token on Ethereum you need some ether, and on Solana you need some SOL. The same token can also exist on more than one network, so always check that you are sending to an address on the same network.

Keep in mind

• Anyone can create a token, and many are made to trick buyers. Chainalysis found that more than half of the Ethereum tokens listed on decentralised exchanges in 2023 showed signs of a possible pump and dump.
• Sending a token to the wrong network can mean losing it. Check the network and the address before you confirm.
• A token with a familiar name may be a copy. Look for the official source before you buy or connect.

Fungible and non-fungible tokens

Ethereum's token standards page describes a few common kinds. A fungible token, built to the ERC-20 standard, is interchangeable: one unit is the same as any other, like one dollar bill for another. Voting tokens, staking tokens and virtual currencies are examples. A non-fungible token, built to the ERC-721 standard, is unique, such as a deed for a piece of art or a song. A third standard, ERC-1155, can handle both kinds in one contract. A standard is a shared rulebook, so wallets and exchanges can support a new token without custom work for each one.

The contract address is the token's real identity

Anyone can create a token and give it any name or ticker, including a copy of a famous one. What makes a token the genuine article is its contract address on a given network, a long string that is unique. Two tokens can look identical in a wallet list and have different addresses. Before you buy or connect to a token, find its contract address on the project's official website, and compare it with the address in your wallet or on a block explorer, a public website that lets you look up blockchain activity.

Red flags with a new token

• No coverage. The FTC lists new coins or tokens that established media have not covered as a warning sign.
• Promises. Guaranteed profit, big or fast returns, or pressure to act at once.
• Hidden people. A team that cannot be identified, or a website with no names, dates or contact details.
• One-way trading. Some scam tokens let you buy but block you from selling.
• Unexpected tokens. Scammers can send unknown tokens to a wallet and hope the owner will visit a website named in the token. If you did not ask for a token, do not interact with it or approve anything linked to it.

Common mistakes

• Buying a token because its name matches a famous project, without checking the contract address.
• Believing a token is safe because it appears in a wallet or on a trading website.
• Sending a token over the wrong network.
• Having no coin for network fees, then being unable to move the token.
• Approving unlimited spending for a token that you only meant to swap once.

Try it yourself

No wallet or money is needed.

1. Choose a well-known dollar stablecoin. On its issuer's official website, find the contract address for one network.
2. Look that address up on the network's block explorer and confirm the token name and symbol match.
3. Write down the same coin's address on a second network, if there is one, and note that the two are different.
4. Search the token name together with "scam" or "complaint" and note what you find.

Key terms

Coin, token, native coin, network fee, smart contract.

Sources and credits

Token standards: ethereum.org, Token standards. Scam warning signs: US Federal Trade Commission. Pump-and-dump figure for 2023: Decrypt, reporting on the Chainalysis crime report. General information, not financial advice.

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