Recently, I saw many newcomers in the community asking what a token means. Actually, this is a very good question because many people have confused tokens with coins.

When I first entered the crypto space, I was also completely confused. Early cryptocurrencies were mainly called coins, like Bitcoin, Litecoin, Dogecoin, and everyone was used to that. But since Ethereum appeared, the concept of tokens started to become popular, and the Chinese translation also became "tokens," which made it even easier for investors to get confused.

The core concept of a token is actually not complicated. Simply put, a token is a digital asset that represents a specific right or certificate, which can be traded, transferred, or exchanged on the blockchain. But the most important point is that tokens do not have their own blockchain; they operate on other blockchains. For example, after Ethereum introduced the ERC-20 standard, anyone could issue their own tokens on it. This is also why Ethereum has become the blockchain with the largest token issuance.

In contrast, coins are different. Coins have their own dedicated blockchain, such as Bitcoin running on the Bitcoin blockchain, and Ether running on Ethereum. They are the native assets of these networks. This distinction may seem subtle, but it actually has a significant impact.

From a functional perspective, tokens are usually divided into three categories. First are payment tokens, mainly used for secure, efficient, and low-cost payments; second are utility tokens, which provide access to various applications—ERC-20 tokens on Ethereum belong to this category; third are asset-backed tokens, which represent ownership in a project, similar to stocks. However, in practice, a token often has multiple attributes at the same time.

Buying and selling coins essentially involves asset transfer, like sending Bitcoin from address A to address B on the chain. But trading tokens is different; behind it is actually invoking a smart contract. Take USDT as an example: when transferring, it triggers the transfer function in the Ethereum smart contract. These transactions usually consume more resources, and the gas fees are often higher.

So, which is more worth investing in—tokens or coins? My view is that both have their merits. Coins mainly solve infrastructure issues, while tokens are built on top of that infrastructure to develop applications and services. If the underlying infrastructure fails, there’s often no fallback, but tokens are much more flexible—for example, MakerDAO can launch new RWA (Real-World Asset) businesses. Also, tokens tend to be more volatile than coins; for instance, in a bull market, tokens like UNI, SNX, and MKR perform far better than BTC and ETH. This creates more opportunities for short-term traders, though the risks are also higher.

If you want to trade tokens, there are mainly two methods. One is spot trading, directly trading actual assets in full amount—like buying a UNI for $3. But be cautious of fake tokens with the same name; always verify the token’s contract address on the official website or blockchain explorer. The other is margin trading, which only involves price difference trading without actually owning the tokens, making it more suitable for traders purely looking to speculate on price movements.

Regardless of which method you choose, remember that token volatility is often more intense than that of coins, especially for newly issued tokens. So, it’s crucial to control your position size and leverage; it’s best not to exceed 10x leverage to avoid liquidation risks. Lastly, choosing a secure and regulated trading platform is the first step in investing in tokens—this is something you must not overlook.