Challenge coins have been around for decades, and it’s a tradition that is still regularly practiced today.
It all started (as far as we can tell) with a newly formed Army Air Corps squadron in WWI. The lieutenant commissioned special brass medallions with the squadron’s insignia for each member of their group.
One pilot, who carried his coin in a pouch around his neck, later crashed behind enemy lines and was taken prisoner. When he finally escaped, the only proof of his identity that he had left was the small medallion with the squadron’s insignia.
Because of this event, the entire squad began to carry their coins habitually.
Now, the “challenge” of a challenge coin revolves around being able to present it when another member of your group requests it. If you can’t, you’re going to be paying for drinks that night. Of course, if you can present it on demand, then it’s the challenger who will pay for the drinks.