A challenge coin is a small coin or medallion (usually military), bearing an organization’s insignia or emblem and is carried by the organization’s members. They are given to prove membership when challenged and to enhance morale.

Like so many other aspects of military tradition, the origins of the challenge coin are a matter of much debate with little supporting evidence. While many organizations and services claim to have been the originators of the challenge coin, the most commonly held view is that the tradition began in the United States Army Air Service (a forerunner of the current United States Air Force).

Air warfare was a new phenomenon during World War I. When the army created flying squadrons they were manned with volunteer pilots from every walk of civilian life. While some of the early pilots came from working class or rural backgrounds, many were wealthy Ivy League students who withdrew from classes in the middle of the year, drawn by the adventure and romance of the new form of warfare.

As the legend goes, one such Ivy Leaguer, a wealthy lieutenant, ordered small, solid-bronze medallions (or coins) struck, which he then presented to the other pilots in his squadron as mementos of their service together. The coin was gold-plated, bore the squadron’s insignia, and was quite valuable. One of the pilots in the squadron, who had never owned anything like the coin, placed it in a leather pouch he wore around his neck for safekeeping. A short while later, this pilot’s aircraft was heavily damaged by ground fire (other sources claim it was an aerial dogfight), forcing him to land behind enemy lines and allowing him to be captured by the Germans. The Germans confiscated the personal belongings from his pockets, but they didn’t catch the leather pouch around his neck. On his way to a permanent prisoner of war facility, he was held overnight in a small German-held French village near the front. During the night, the town was bombarded by the British, creating enough confusion to allow the pilot to escape.

The pilot avoided German patrols by donning civilian attire, but all of his identification had been confiscated so he had no way to prove his identity. With great difficulty, he crept across no-man’s land and made contact with a French patrol. Unfortunately for him, the French had been on the lookout for German saboteurs dressed as civilians. The French mistook the American pilot for a German saboteur and immediately prepared to execute him.

Desperate to prove his allegiance and without any identification, the pilot pulled out the coin from his leather pouch and showed it to his French captors. One of the Frenchmen recognized the unit insignia on the coin and delayed the execution long enough to confirm the pilot’s identity.

Once the pilot safely returned to his squadron, it became a tradition for all members to carry their coin at all times. To ensure compliance, the pilots would challenge each other to produce the coin. If the challenged couldn’t produce the coin, he was required to buy a drink of choice for the challenger; if the challenged could produce the coin, the challenger would purchase the drink.

Another tradition dates to US Military personnel assigned to occupy post World War Two Germany. With the exchange rate, the West German One Pfennig coin was worth only a fraction of a U.S. cent, and they were thus generally considered not having enough value to be worth keeping - unless one was broke. At any place where servicemen would gather for a beer, if a soldier called out "Pfennig Check" everyone had to empty their pockets to show if they were saving any West German Pfennigs. If a soldier could produce a Pfennig, - it meant that he was nearly broke, … and if a soldier could not produce a Pfennig, it meant that he had enough money to not bother saving them, - and thus enough money to buy the next round.

One version of this story dates from the Vietnam war:

The tradition of the coin giving dates back to Vietnam actually when soldiers would tote along a piece of "lucky" ordnance that had helped them or narrowly missed them. At first it was small arms ammunition, but this practice grew to much bigger and more dangerous ordnance as time wound on. It became then actually a dangerous practice because of the size and power of the ordnance being carried, so commanders banned it, and instead gave away metal coins emblazoned with the unit crest or something similar. The main purpose of the ordnance had been when going into a bar, you had to have your lucky piece or you had to buy drinks for all who did have it. The coins worked far better in this regard as they were smaller and not as lethal! So, if you go to a military bar, whip out a challenge coin and slam it down on the bar, those who lack one buy drinks! Obviously you have to be careful about this tradition... However, Commanders and units give out coins for this and as mementos for services rendered or special occasions.

This tradition spread to other military units in all branches of service and even to non military organizations. Today, challenge coins are given to members upon joining an organization, as an award to improve morale, and sold to commemorate special occasions or as fundraisers.

President Bill Clinton displayed several racks of challenge coins, which had been given to him by U.S. servicemembers, on the credenza behind his Oval Office desk. These coins are currently on display at the Clinton Library. The challenge coins appear in the background of his official portrait, now hanging in the White House.

President George W. Bush received a challenge coin from a Marine combat patrol unit during his short but unexpected visit to Al-Asad Airbase in Anbar province, Iraq, Monday, Sept. 3, 2007.

In 2008, Leatherneck Magazine gives a 90th Anniversary Leatherneck Challenge Coin to a select few readers who send in letters to their Sound Off section which the editors particularly like. There is another story about an American soldier scheduled to rendezvous with Philippine guerrillas during WWII and with him he carried a Philippine solid silver coin stamped with the unit insignia on one side and the coin verified to the guerrillas that he was their valid contact for the mission against the Japanese. http://www.airmilitaire.com/default.asp?S=E3&Document=Challenge_coin&NID=4522866

The tradition of a challenge is the most common way to ensure that members are carrying their unit's coin. Unfortunately, the rules of a challenge are not always formalized for a unit, and may vary between organizations. This may lead to some controversy when challenges are initiated between members of different organizations.

The challenge, which can be made at any time, begins with the challenger drawing his/her coin, and slapping or placing the coin on the table or bar. In noisy environs, continuously rapping the challenge coin on a surface may initiate the challenge. (Accidentally dropping a challenge coin is considered to be a deliberate challenge to all present.) Everyone being challenged must immediately produce the coin for their organization and anyone failing to do so must buy a round of drinks for the challenger and everyone else who has their challenge coin. However, should everyone challenged be able to produce their coin, the challenger must buy a round of drinks for the group.

While most holders of challenge coins usually carry them in their pockets or in some other readily accessible place on their persons, most versions of the rules permit a challenged person "a step and a reach" (particularly useful if one is challenged in the shower).

Variants of the rules include the following. If you are able to steal a challenge coin, everyone in the group must buy you a drink. During a challenge, everyone in the group must buy you a drink if you are the holder of the highest ranking coin. Some units provide strict time limits to respond to a challenge.

One feature of challenge coins is it takes a conscious effort to carry one at all times. Traditionally, rules of a challenge include a prohibition against defacing the coin, especially if it makes it easier to carry at all times. If the challenge coin is attached to a belt buckle or key ring, or has had a hole drilled in it to attach to a lanyard, it no longer qualifies as a challenge coin. A generally safe place to carry a coin is in a pouch worn around the neck (like the pilot in the legend). Carrying a challenge coin in the wallet is problematic because the distinctive circular bulge identifies the individual as a military member—a serious security consideration in many places—and because it can loosely resemble a condom (and therefore open the individual up to jokes from friends). Some unit rules specifically prohibit carrying a challenge coin in a wallet.

The popularity of challenge coins are stretching past the military. NASCAR [8], the NFL and World Series of Poker all have their own challenge coins. They are also becoming extremely popular with Police Departments, Fire Departments and Fraternal organizations. In 2007, the Utah Symphony and Opera gave challenge coins to all of its staff and musicians, making it the first symphony organization in America to embrace the challenge coin tradition.^{[citation needed]} Coins do not have to be given to someone to be called a Challenge Coin, as many non-governmental organizations sell challenge coins to fundraise or promote their products or services.