The words crypto tokens and coins are often used interchangeably by beginners, but they have very different meanings. To understand the differences between them, it’s important first to understand what a token is and what a coin is.
A crypto token can be defined as “a digital asset that doesn’t have its blockchain.” This means that crypto tokens are built on top of other blockchains like Bitcoin or Ethereum. Tokens can be designed to be anything from a digital asset like Bitcoin to a utility token like Ether that grants access to decentralized applications.
On the other hand, a coin is “an open-source cryptographic currency that’s usually used as a medium of exchange on the Internet.” It can also refer to virtual currency mined and issued by the users of an open-source software project. The difference between crypto tokens and coins is that they are digital assets with no governance; they’re simply software assets built on top of existing blockchains.
The phrases “coins” and “tokens” are sometimes used interchangeably in cryptocurrencies, although they correspond to entirely distinct ideas. The fact that they are both classified as cryptocurrencies makes it simple to get them mixed up with one another. To put it simply, cryptocurrency is a digital asset built on blockchains, and this definition encompasses both tokens and coins
Although from the average user’s perspective, coins and crypto tokens are essentially the same things, there are technical distinctions in how they are constructed. Cryptocurrency users may benefit from being aware of this distinction to make more educated decisions.
This article will describe what distinct traits coins and tokens share and what distinguishes them.
What is a coin?
A cryptocurrency created specifically on a given blockchain is referred to as a coin. Many new blockchains are being developed from the ground up as alternatives to or improvements upon Bitcoin and other public ledgers already in existence.
While a pre-built open-source blockchain makes it possible to create a blockchain, the process is still time-consuming and requires certain technical competence. Because it is only possible to produce a coin by first constructing a blockchain, launching a coin is a difficult and time-consuming process.
Bitcoin, often known as BTC, is an excellent illustration of a coin. It is utilized to pay transaction fees on the network and is powered by its blockchain, which shares the same name.
Altcoins are so-called because they are alternatives to the original cryptocurrency, bitcoin (BTC), the first digital money to become widely used. Every alternative cryptocurrency also possesses its very own decentralized and autonomous network.
According to the website Coingecko.com, the following is a list of the top 10 cryptocurrencies that can be classified as coins:
What are Coins Used for?
Coins are utilized to pay transaction fees on blockchains. Developers of coins frequently issue coins themselves to create a profit and encourage users to hold onto the coin rather than spend it.
Coins can be used in a lot of different ways. For example, they can be used as an investment, for payment of goods and services, and wax and wane as a medium of exchange. It is important to remember that all coins can store value over the long run if they are utilized correctly.
Exchanging for other currencies:
Coins can be exchanged for other currencies. Doing so has provided some coins with a significant degree of liquidity and is an important factor in the general market value of these currencies.
Paying for goods and services:
Although there are very few goods and services for which a coin is used for payment, the option does exist. This use case will likely develop over time, especially as cryptocurrencies become more ubiquitous. It can be challenging to find merchants who accept digital currency as payment. Still, it is important to remember that even the first online retailers had few customers. As networks grow and crypto-users become more numerous, merchants will follow suit.
Transferring to others:
Coins can be transferred from one network address to another without needing a centralized payment gateway. However, this means it should be treated as something other than a standard form of payment, such as PayPal or Venmo.
Popular Crypto Coins
BTC is the most popular cryptocurrency. It is built upon blockchain technology and is the first cryptocurrency to achieve widespread acceptance in mainstream society. Bitcoin has been called a store of value because of its price stability, ability to transfer value across borders at very low fees, and relative independence from centralized banks or governments.
ETH was created as an alternative cryptocurrency to Bitcoin because it offered faster block times and improved security through smart contracts. Ethereum offers some advantages over Bitcoin, including lower transaction fees and faster confirmation times. However, Bitcoin does not enjoy the same acceptance level as Bitcoin.
LTC is a cryptocurrency created as an alternative to bitcoin. Litecoin processes more transactions and has more coins already in circulation than its major competitors. This makes it appealing to many who perceive Bitcoin as too expensive and Ethereum too slow.
XRP exists on the Ripple network, offering very fast transaction times and low customer fees. It is generally regarded as the most reliable coin and one of the best investments available in 2018.
What are Tokens?
A cryptocurrency created specifically on a blockchain aside from the primary coin is referred to as a token.
Tokens are cryptocurrencies that exist only within a particular blockchain network. For example, in the Ethereum network, it is possible to issue the tokens known as “ethers,” which act as transaction fees into the network and can be used in smart contracts such as “DAO” tokens. The next section will go into more detail about how these tokens work within their respective networks.
A token is a digital property for a certain commodity or service. In contrast to coins, Tokens do not have their blockchain; rather, they are issued on top of existing networks. In contrast to coins, Tokens are not extracted from the blockchain during the transaction validation process. Instead, they are produced in a mint.
The total quantity of tokens produced is contingent on certain requirements imposed by the project generating them.
Tokens can be used for a variety of different things. They can be used to collect revenue or provide access to specific services. Some tokens even can represent currency on networks other than their own.
These tokens are referred to as “wrapped tokens,” and their prices are correlated to those of the underlying asset. Stablecoins, such as an example of a token that follows the price of the United States dollar, is an additional type of token that is quite popular.
What is a Token Used for?
A token can be used for many different things. For example, they can be used to pay transaction fees on blockchains; access certain network features at no cost, and exchange for other network tokens.
Tokens can be exchanged for other cryptocurrencies or even fiat currencies. Many tokens developers will create tokens to allow users to exchange them for fiat currency. However, there are other uses for tokens. Tokens can also be used to pay for goods and services and exchanged into other cryptocurrencies.
Many tokens can be exchanged for goods and services using their native token. They are often used as a form of payment but are wider than that use case.
Tokens can be transferred from one network address to another without a centralized payment gateway or third-party exchange.
Difference Between Crypto Tokens And Coins
The cryptocurrency industry has determined that the most important distinction between coins and altcoins is that crypto coins are the assets native to a Blockchain, such as Bitcoin or Ethereum. In contrast, crypto tokens are produced by applications and platforms built on top of an existing Blockchain.
“A Blockchain can only hold one native asset, a coin, but it can have hundreds more tokens created on top of it.” Even though Ethereum Classic (ETH) is the blockchain’s native cryptocurrency, numerous other tokens also use the Ethereum Blockchain.
According to Vikram Subburaj, CEO of Giottus Crypto Platform, some crypto tokens constructed on top of Ethereum include LINK, MATIC, and USDT, among others.
Coins are typically used for governance, transaction fees, and other use cases linked to cryptocurrency. They are considered the infrastructure and the backbone of the blockchain by industry experts. Tokens can represent various real-world use cases, such as gambling, stablecoins, network-based transactions (NFTs), and other fees.
Crypto coins have a higher inherent worth since they form the basis of the blockchain.
“Imagine a future in which just 5-10 Blockchains are significant, and all crypto tokens (thousands of them) are distributed between them. “When compared to other tokens, coins affiliated with such Blockchains have a greater chance of success,” adds Subburaj.
For the most part, coins and tokens are used for the same purposes. It is important to understand that tokens are created to enhance an existing (or a future) Blockchain for a particular purpose. They are used to either pay for services such as a subscription fee or an entrance ticket, or they can be traded for other cryptocurrencies. It is important to note that there were many ICOs that never issued any tokens at all.