Crypto Coins vs. Token: Understanding the Difference
Prepared by: Wilmina
Nearly everybody has confused a token for a coin at some point in their cryptocurrency journey.
The truth of the matter is that coin and token are a lot of the same on a fundamental level. They both represent value and can process payments. You can likewise swap coins for tokens and vice versa.
The primary distinction between these two comes down to utility. There are things you can do with tokens and not with coins. Then again, some marketplaces will acknowledge coins and not tokens.
The crypto industry has said that the key distinction between coins and tokens is that crypto coins are the native asset of a Blockchain like Bitcoin or Ethereum, whereas crypto tokens are created by platforms and applications that are built on top of an existing Blockchain.
When Bitcoin first came out, it set the standard for what it means to be a coin. There are clear-cut qualities that distinguish crypto coins from tokens, which are like real-world money.
What is a Crypto Coin?
A blockchain can only have one native asset (coins) whereas, it can have hundreds of tokens built on top of it. Example – ETH is the native crypto coin of the Ethereum Blockchain.
Elsewhere, a coin is native to its Blockchain. It uses its own Blockchain and keeps track of the datastores value, validates transactions, and keeps the Blockchain secure.
A coin is defined by the following characteristics:
- Operates on its blockchain. A blockchain keeps track of all transactions that involve its native crypto coin.
When you pay someone with Ethereum, the receipt goes to the Ethereum blockchain. If the same person pays you back later with Bitcoin, the receipt goes to the Bitcoin blockchain. Each transaction is protected by encryption and is accessible by any member of the network.
- Built on a blockchain or other Distributed Ledger Technology (DLT), which allows participants to enforce the rules of the system in an automated, trustless fashion. Uses cryptography to secure the cryptocurrency’s underlying structure and network system.
- Acts as money. Bitcoin was created for the sole purpose of replacing traditional money. The paradoxical appeal of transparency and anonymity inspired the creation of other coins, including ETH, NEO, and Litecoin.
You can purchase merchandise and services from many major corporations today, such as Amazon, Microsoft, and Tesla, using crypto coins. Bitcoin has recently become an official currency of El Salvador alongside the US dollar.
- Can be mined. You can earn crypto coins in two ways. One is through traditional mining on the Proof of Work Bitcoin hunters employ this method to boost their earnings. The problem with this is that there aren’t that many Bitcoins left to mine, so the process becomes more arduous every day.
The other method is Proof of Stake, which is a more modern approach to earning coins. It’s lighter on energy consumption and easier to do. Cardano is one of the biggest coins that adopt this system.
- Decentralized, or at least not reliant on a central issuing authority. Instead, cryptocurrencies rely on code to manage issuance and transactions.
List of Top Blockchain in 2022 and its native coins
|Ethereum – ETH||Binance Smart Chain – BNB||Cosmos – ATOM|
|XDC Network – XDC||Cardano – ADA||Algorand – ALGO|
|Stellar – XLM||Polkadot – DOT||Klaytn – KLAY|
|Tezos – XTZ||Solana – SOL||IOTA – MIOTA|
|Tron – TRX||Polygon – MATIC||Avalanche – AVAX|
|Hedera Hashgraph – HBAR||VeChainThor – VET||Elrond – EGLD|
|EOS – EOS||NEO – NEO||Waves – WAVES|
What is a Token, Its characteristics, and Functions?
- Tokens exist in a digital record on the blockchain. But tokens aren’t money, as money is typically understood. Instead, they represent things.
- A Token is built on top of the Blockchain, like Ethereum Blockchain, there are many other different tokens that also utilize the Ethereum Blockchain. Some of the most seen tokens on Ethereum include STKR, BAT, BNT, Tether, LINK, USDT, and various stablecoins like the USDC.
- Typically, token coins are used for governance, transactional fees, and other related use cases.
- Experts say that they are the infrastructure and the backbone of the Blockchain.
- To create a token, there is no need to create a Blockchain and write the entire code and worry about how transactions would be validated; instead, create a token and it runs on someone else’s Blockchain. This means there is no need to keep improving the entire system, updating how it works, and patching vulnerabilities – the team can solely focus on providing a great project. The token team can rely on the coin’s network to provide safety and stability for the network.
- Tokens are created by businesses. They give the owner the right to use that company’s product or service in the future.
- Often a Token represents physical or intellectual property, such as a work of art, a piece of music or a book. The best-known example of this is the non-fungible tokenor NFT.
- When a token is spent, it physically moves from one place to another. A great example of this is the trading of NFTs (non-fungible tokens.) They are one-of-a-kind items, so a change in ownership must be manually handled. NFTs often carry only sentimental or artistic value, so in a way, they’re similar to utility tokens, except you can’t oblige any services.
- Token is different from coins because crypto coins do not move around, only account balances change. When you transfer money from your bank to someone else’s, your money doesn’t go anywhere. The bank changed the balances of both accounts and kept the fees. The same thing happens with blockchain – the balance in your wallet changes, and the transaction notes that.
- You can buy tokens with coins, but some tokens can carry more value than any of them. For example, a company’s share. However, since there are usually restrictions to where you can spend a token, it doesn’t have the liquidity a coin offers.
- On a broader scale of things, tokens existed long before cryptocurrency was a thing. Even today, it has very little to do with crypto at all.
- Everyone has used a token at least once in their life. That dinner for two vouchers you got in the mail is a token. Your car title is a token. When you sell your car, you transfer the value of that title to someone else. However, you can’t go to Microsoft and buy a computer with that title or dinner voucher.
- Another interesting thing about tokens is how easy it is to create one. Some networks like Ethereum provide templates where you can brand your tokens and start trading. This makes it so anyone with little to no technical knowledge can become a market maker. You’ll find a high density of this type of activity on decentralized exchanges, such as Uniswap.
- There are many other different tokens that also utilize the Ethereum blockchain. Crypto tokens built using Ethereum include DAI, LINK, COMP, and CryptoKitties, among others. These tokens can serve a multitude of functions on the platforms for which they are built, including participating in decentralized finance(DeFi) mechanisms, accessing platform-specific services, and even playing games.
- Typically, crypto tokens are programmable, permissionless, trustless, and transparent. Programmable simply means that they run on software protocols, which are composed of smart contractsthat outline the features and functions of the token and the network’s rules of engagement.
Permissionless means that anyone can participate in the system without the need for special credentials.
Trustless means that no one central authority controls the system; instead, it runs on the rules predefined by the network protocol.
Transparency implies that the rules of the protocol and its transactions are viewable and verifiable by all.
The most significant distinctions between tokens and coins.
Coins and tokens both represent a store of value, much like fiat currency, such as dollars, euros, yen, etc. But there’s a crucial difference: digital coins are a form of money, while digital tokens represent something that can be assigned a price.
|Represent: Digital version of money||Represent: assets or deeds|
|Denotes: capability of ownership||Denotes: what you own|
|Built on Blockchain||Do not have blockchain, built and operate on on existing blockchains.|
|Handled by Blockchain and uses Smart contracts||Rely on smart contracts|
|Crypto coins have higher intrinsic value as they form the foundation of the Blockchain.
|Tokens can represent a myriad of real-world use cases, including gaming, Stablecoins, NFTs, and other fees|
|In buying products – need coins||If availing service – can use token utility|
|Capital-intensive, complex process. It requires programmers, machinery, money, and organization.||Can be created by anyone with a computer and something to tokenize. The software to do so is readily available on a variety of platforms.|
As the blockchain industry keeps on innovating, the quantity of remarkable advanced resources will just keep on developing as per the multi-layered necessities of all Ecosystem participants going from big business accomplices to individual users. Considering that making new resources inside the Web3 world is less prohibitive than in the physical domain, these digital resources are broadly expected to further develop the manner in which endless ventures work, cooperate, and produce esteem, consequently empowering a huge range of new social and financial possibilities outcomes.