Skip to main content

Coins vs Tokens: The Four Main Categories

· 3 min read

From the previous lessons, you’ve learned what Bitcoin and Ethereum are, how they differ, and what roles they perform.
But it’s very important to understand the difference between a network and the unit of account within that network. Let me explain.

  • Bitcoin is a global distributed system of digital money, and the main unit of account in this network is bitcoin (BTC).
  • Ethereum is a platform for decentralized applications, and the main unit of account in this network is ether (ETH).

Coins​

Bitcoin and ether are coins — the primary accounting units within their own blockchains.

Examples:

  • BNB in Binance Smart Chain
  • AVAX in Avalanche

Tokens​

A token is a cryptocurrency built on top of an existing blockchain (e.g., Ethereum or Avalanche).
Tokens can be divided into several major categories:

1. Stablecoins​

  • Used to digitize government currencies and other real-world assets.
  • Example: USDT – a token built on Ethereum (and other blockchains), pegged to the US dollar.
  • Key point: USDT is not the unit of account of Ethereum, it simply uses Ethereum’s blockchain as infrastructure.

👉 Despite the name, stablecoins are tokens, not coins.

2. Utility Tokens​

  • Used to access or purchase services, goods, or discounts.
  • Examples:
    • Fee discounts on decentralized exchanges for token holders.
    • NFT project access restricted to specific token holders.
    • Tokens required to buy products or join launches.

👉 These are utility tokens because they unlock use-cases inside platforms.

3. Security Tokens (Equity Tokens)​

  • Work similar to dividends in traditional finance.
  • Example: A DEX (decentralized exchange) earns fees and distributes part of its income to token holders.
  • Such tokens represent profit-sharing rights and are often used in DeFi.

👉 These are called security tokens or equity tokens.

4. NFTs (Non-Fungible Tokens)​

  • Non-fungible tokens are unique and cannot be copied.
  • NFTs are more than “monkey pictures.”
  • They represent unique ownership and have many use cases (art, gaming, real estate, digital identity, etc.).

👉 I’ll cover NFTs in detail in a separate lesson.

Summary​

  • Coins are the primary units of account within their own blockchains.
  • Tokens are cryptocurrencies built on top of existing blockchains (e.g., USDT on Ethereum).

Tokens fall into four main categories:​

  1. Stablecoins
  2. Utility tokens
  3. Security tokens
  4. NFTs

⚡ In reality, there are many more types of tokens. This lesson only covers the four main categories.

What’s Next​

In the next lesson, we’ll explore how stablecoins work, why they are needed, and how they differ from one another.

Disclaimer: These materials are created for educational purposes only and do not constitute financial advice.