Web3 Tokens and Coins
People use "coins" and "tokens" interchangeably, but they mean very different things in Web3. Knowing the difference helps you understand what you are actually holding and why it has value.
Coins vs. Tokens — The Core Difference
| Feature | Coin | Token |
|---|---|---|
| Lives on | Its own blockchain | An existing blockchain |
| Examples | BTC, ETH, SOL | USDC, UNI, LINK |
| Primary use | Pay for transactions, store value | Access services, governance, assets |
| Created by | Network itself (mining/staking) | A developer using smart contracts |
A Simple Analogy
Think of a country and its shops:
- A coin is like a country's official currency (e.g., the US Dollar). It exists independently.
- A token is like a voucher a shop creates (e.g., a gift card). It runs on top of the official currency system.
Types of Tokens
1. Utility Tokens
These give you access to a product or service. You use them to pay fees or unlock features within a specific platform.
Example: Filecoin (FIL) — you pay FIL to store files on the decentralized Filecoin network.
2. Governance Tokens
These give you voting rights. If you hold governance tokens, you vote on how a protocol changes — like a shareholder voting at a company meeting.
Example: UNI (Uniswap) — holders vote on fee changes and upgrades to the exchange.
3. Stablecoins
These are tokens designed to keep a stable value, usually pegged to the US Dollar. They protect you from price swings while staying in the Web3 ecosystem.
[Volatile Crypto] [Stablecoin (USDC)] $4,000 ▲ $1.00 ───────────────── $3,200 ▼▲ $1.00 ───────────────── $1,800 ▼ $1.00 ───────────────── Unpredictable Always ~$1
Examples: USDC, USDT, DAI
4. Security Tokens
These represent real-world assets like shares in a company or ownership of property. They are regulated like traditional financial assets.
Example: A tokenized share in a startup, traded on a blockchain instead of a stock exchange.
5. Non-Fungible Tokens (NFTs)
Each NFT is unique and cannot be swapped 1-for-1 with another. They represent ownership of a specific item — digital art, a game character, a certificate.
NFTs get their own full topic later in this course.
Fungible vs. Non-Fungible
Fungible means interchangeable. One dollar equals any other dollar. One ETH equals any other ETH.
Non-fungible means unique. One specific painting is not the same as any other painting, even if both are "paintings."
Fungible (ETH): Non-Fungible (NFT): [1 ETH] = [1 ETH] [CryptoPunk #7804] ≠ [CryptoPunk #3] Swappable 1:1 Each one is different
How New Tokens Get Created
Anyone can create a token on a blockchain like Ethereum by writing a smart contract. The contract defines the token's name, supply, and rules. This low barrier to entry is why thousands of tokens exist.
Token Standards
Blockchains use standards to keep tokens compatible with wallets and apps:
- ERC-20 — the standard for fungible tokens on Ethereum
- ERC-721 — the standard for NFTs on Ethereum
- ERC-1155 — supports both fungible and non-fungible in one contract
What Gives a Token Value?
- Utility: Is it needed to use a popular service?
- Scarcity: Is the supply limited?
- Demand: Do people want it for governance, trading, or access?
- Trust: Is the project credible and actively developed?
A token with no real use case and unlimited supply holds very little value. A token that unlocks a heavily used service with a capped supply tends to hold demand.