During post-World War II, US military personnel were assigned to occupy Germany where the one Pfennig coin was worth only a fraction of a U.S. cent, and was considered not worth saving, unless one was broke. In bars, if a soldier called out "Pfennig Check," everyone had to empty their pockets to show if they were saving any Pfennigs. If a soldier had a Pfennig, it meant that he was nearly broke. If a soldier did not have a Pfennig, it meant he had enough money not to bother saving them, so he had to buy the next round.
During the Vietnam war, soldiers would carry a piece of "lucky" ordnance that had helped them or narrowly missed them. When this became dangerous, commanders banned the practice, and gave the men metal coins emblazoned with the unit crest or something similar to replace the lucky piece. When you sent into a military bar, slammed you coin on the bar and those who lacked one had to buy you a drink. Commanders and units also gave the coins as mementos for services rendered or special occasions.
The challenge coin tradition probably began amongst special forces units during the Vietnam War and spread through the Airborne community. By the early 1980s, it has spread into the 75th Infantry "Rangers." As officers were reassigned as their careers progressed, they carried with them the tradition of awarding a unit coin for acts that were worthy of recognition, but yet lacked enough merit to submit the soldiers act for an official medal. Challenge coins were not very common until the First Persian Gulf War of 1990-1991, but have steadily grown in popularity since.
One widely known challenge coin in the United States Air Force was the "Bull Dog" challenge coin that was exclusive to B-52 enlisted tail gunners. This coin was presented to gunners upon graduation from their Air Force technical training and their entry into the "Gunners Association." In the earlier days of bombers, a bean or a nugget was used. The coin represents the attributes of strength and courage as reflected in the Bulldog, the gunner's official mascot. The coin was also given to certain "honorary gunners," usually commanders and leaders who portrayed the spirit of the bulldog. Since the B-52 gunner position was phased out in 1991, this famous challenge coin has become a military tradition.