Coins vs tokens: how should we classify cryptos?

The cryptocurrency lexicon is complex. From abbreviations (DeFi) to acronyms (HODL) and brand-new jargon (tokenomics and yield farming), getting your head around it takes time. Two of the simpler terms are coins and tokens, but even the crypto community confuses things by using them interchangeably.

The easiest way to distinguish between coins and tokens is how they come into existence: ‘layer 1’ (L1) blockchains like Bitcoin and Ethereum issue coins, whereas tokens derive from projects built on those blockchains. However, the differences extend beyond their origin.

What are the defining features of coins?

Let’s start with use cases. Coins serve as the currencies of their native networks, meaning they function as a medium of exchange. Bitcoin (BTC), the original cryptocurrency, is the perfect example: Satoshi Nakamoto, its pseudonymous founder, designed BTC as a “peer-to-peer electronic cash system,” intended to pay for services and to economically reward validators of the network (miners).

Although many investors treat Bitcoin as “digital gold” because of its scarcity (Satoshi capped the supply at 21 million), its native use case remains that of a digital currency. It is the economic pillar of its ecosystem, as coins are also used to pay a network’s transaction fees.

Blockchain validators—whether miners (for Bitcoin, Litecoin, or other proof-of-work networks) or stakers (for Ethereum, Solana, Polkadot, Tezos, and Hyperliquid)—are rewarded for their work through transaction fees. Every transaction involving a smart contract on programmable blockchains incurs a fee, which users must pay in the blockchain’s native coin.

Some of the other largest coins by market capitalisation, such as Ripple’s XRP and Tron’s TRX, are also used as the currencies of their respective blockchains.

How about tokens?

Tokens have a broader range of functionality than coins. They’re programmed using ‘standards’, essentially a set of instructions specific to each blockchain. The most widely used standard is Ethereum’s ERC-20, which makes tokens compatible with projects and wallets running on its network. According to blockchain scanner Etherscan, there are over 1.7M ERC-20 tokens (including utility tokens and stablecoins, which we discuss below). Another standard called ERC-721 paved the way for non-fungible tokens (NFTs), which represent digital ownership of a particular item, like a piece of art. Artist Beeple famously auctioned an NFT of ‘Everydays: The First 5000 Days’ for $69M in March 2021.  

The approach to issuing tokens is also different. Most entities (foundations, companies, startups, individuals) mint the whole supply in one go and then decide how to distribute them, for instance among founders, investors and early adopters. Projects often use this process to raise funds through the crypto version of a public listing. However, some tokens, like stablecoins (see below), are minted on demand, while others are inflationary (their supply grows over time depending on their activity).

Here are a few examples of tokens that demonstrate the versatility of this category:

• Utility tokens: they are digital assets designed to provide access to a product, service, or feature within a specific blockchain application. In practical terms, a utility token is used, not held for rights. For instance, LINK is the native token of Chainlink, an oracle network that bridges blockchains with the real world. Oracles gather and verify data, then feed it into smart contracts so they can complete transactions, such as confirming the outcome of an event so a prediction market can settle a bet. LINK is used to pay for oracle services, reward data providers, participate in the project’s governance (have a say in how it’s run) and staking.

• Stablecoins are cryptos pegged to the value of another asset, most commonly a fiat currency such as the US dollar. They’re one of blockchain’s earliest killer apps because they combine stability with crypto’s speed and low costs for use cases including making cross-border transactions more efficient and providing savings products for citizens of developing countries. There’s some debate over how to categorise stablecoins, but given the majority are issued by projects built on L1s (like Solana), we classify them as tokens.   

• Tokenised Real world assets (RWAs): they are digital tokens representing real-world assets (RWAs), predominantly investments such securities (bonds, equities) or commodities (gold). Standards like ERC-3643 have enabled tokenisation, allowing issuers to programme the tokens so they follow the same rules that apply when investing in mainstream assets.

How does regulation shape these definitions?

If you’re hoping that global regulations governing crypto might provide some clarity, prepare to be disappointed and at times frustrated. Quite the opposite in fact, the array of terms and lack of consistency add to the confusion.

• The EU’s Markets in Crypto Assets regulation (MICA), one of the few examples of a custom framework, classifies cryptos under three categories, each with its own legal requirements. It defines e-money tokens as pegged to a single fiat currency, whereas asset-referenced tokens can peg to multiple types of collateral, such as currencies, commodities or crypto. Everything else falls under the ‘other crypto assets’ category.

• The UK’s Financial Conduct Authority (FCA) currently classifies coins and tokens as ‘cryptoassets’. However, it has proposed amending the Financial Services and Markets Act to create three new categories: ‘qualifying cryptoassets’, an umbrella term covering the majority of cryptos; ‘qualifying stablecoins’; and ‘specified investment cryptoassets’, seemingly devised explicitly to classify tokenised RWAs.

• The US has taken a rather ad hoc approach to regulating crypto. The Commodity Futures Trading Commission classifies BTC and ETH as commodities (along with LTC, another coin), whereas the Securities and Exchange Commission, until relatively recently, was suing leading exchanges Coinbase and Binance for facilitating the trading of coins and tokens it believed should be classified as securities. That said, US policymakers approved the GENIUS Act, a regulatory framework for stablecoins, in the summer of 2025.  

Conclusion

The main way to distinguish between coins and tokens is by their use case and how they’re issued. While the classification of coins should remain as it currently is, the classification of tokens could expand significantly in the future as the tokenisation of real-world assets and instruments increases. Still, even if it’s convenient to use a single word to describe these assets, it’s important to understand that they serve a broad range of functions and aren’t all the same.

Understanding these differences will help you understand what you’re investing in and ensure you make informed decisions when building your crypto portfolio.