How Do Crypto Coins Work?
Coins are the native currency of their own blockchain. Bitcoin runs on the Bitcoin blockchain, ETH runs on Ethereum, and SOL runs on Solana. Each blockchain has its own consensus mechanism, network of validators or miners, and security model. Coins are used to pay transaction fees on their respective networks and often serve as the economic incentive for validators. Creating a new coin requires building an entirely new blockchain or forking an existing one.
How Are Tokens Created?
Tokens are created using smart contracts on existing blockchains, most commonly Ethereum. Standards like ERC-20 (fungible tokens) and ERC-721 (NFTs) define how tokens behave and interact with wallets and applications. Anyone with basic programming knowledge can create a token in minutes — which is why there are tens of thousands of tokens but only a few hundred distinct blockchains. Token security depends on the underlying blockchain, not the token creator.
Why Does the Distinction Matter for Investors?
Understanding the difference helps you evaluate investments. Coins represent fundamental blockchain infrastructure — investing in ETH means believing in Ethereum's network. Tokens represent applications or protocols built on that infrastructure — investing in UNI means believing in Uniswap specifically. Tokens also carry additional risks: they depend on their host blockchain's security and performance, and they are far easier to create, meaning the barrier to launching a scam token is very low.
Frequently asked questions
Is Ethereum a coin or a token?
Ether (ETH) is a coin — it is the native currency of the Ethereum blockchain. However, thousands of tokens (like USDC, UNI, and LINK) run on Ethereum as ERC-20 tokens. The Ethereum blockchain hosts more tokens than any other network.
Can a token become a coin?
Yes. Some projects start as tokens on Ethereum and later launch their own blockchain, at which point they become coins. Binance's BNB started as an ERC-20 token before migrating to its own BNB Chain. This process is called a mainnet launch.