So you’ve stumbled across the world of cryptocurrencies and believe you have everything figured out: you have some cryptocurrencies, have downloaded a cryptocurrency wallet, and are ready to become wealthy in cryptocurrencies since you are aware of cryptocurrencies’ promising future.
But then you start to realize that people are referring to so many unfamiliar cryptocurrency phrases. Especially “token” and “coin”. They’re all just cryptocurrencies, right? Almost everyone who has ever used cryptocurrencies has occasionally mistaken a token with a coin. If you too wish to learn major differences between coins and tokens, this blog is the right place.
Table of Contents
Explaining Digital Assets
Understanding the distinctions between digital assets, cryptocurrencies, and tokens is crucial if you’re just getting started with blockchain and cryptocurrencies. Although these phrases are frequently used interchangeably, they vary in a number of significant ways.
A digital asset, broadly defined, is a non-tangible item that is produced, exchanged, and kept in a digital format. Digital assets in the context of blockchain include cryptocurrencies and crypto tokens. The use of cryptography, a sophisticated encryption technology that ensures the legitimacy of crypto assets by eliminating the potential of counterfeiting or double-spending, distinguishes cryptocurrency and tokens as special subclasses of digital assets.
Cryptocurrencies, like BTC or ETH, are the native assets of a blockchain, whereas tokens are created as part of a platform that is built on an existing blockchain, like the numerous ERC-20 tokens that make up the Ethereum ecosystem. This is the key difference between the two classes of digital assets.
Coin Vs Token: Are Tokens and Coins Different or Similar?
Coins and tokens really have a lot of fundamental similarities. Both are capable of processing payments and reflect value. Coins can be exchanged for tokens and vice versa. Utility is the major distinction between these two. You can do some things with tokens that you can’t with coins. Some markets, however, only accept coins; they do not accept tokens.
The concept is very similar to comparing investors and traders – all traders invest, but not all investors trade. Keep in mind that the majority of cryptocurrency users often possess both coins and tokens.
You can do some things with tokens that you can’t with coins. Some markets, however, only accept coins; they do not accept tokens. The concept is very similar to comparing investors and traders – all traders invest, but not all investors trade. Keep in mind that the majority of cryptocurrency users often possess both coins and tokens.
In this blog we will further discuss the major differences between coins and tokens. After finishing this blog you will know what you are talking about coin vs token.
Coin Vs Token: What is a Coin?
When Bitcoin initially aired, it established the criteria for what constitutes a coin. Crypto currencies have distinct characteristics that set them apart from tokens, which resemble conventional currency.
The following characteristics constitute a coin:
1. Functions using its blockchain: A blockchain records all transactions involving its own cryptocurrency.
The receipt from an Ethereum payment is added to the Ethereum blockchain. The receipt is added to the Bitcoin blockchain if the same individual later pays you back in bitcoin. Every transaction is encrypted for security and is available to every network user.
2. Functions as Money: Bitcoin was developed specifically to displace conventional currency. Other currencies, including ETH, NEO, and Litecoin, were created as a result of the contradictory attraction of transparency and anonymity.
Today, you can use cryptocurrency to buy goods and services from several large firms, like Amazon, Microsoft, and Tesla. Along with the US dollar, bitcoin has just just been recognised as legal tender in El Salvador.
Read also: How Much NFT Token Development Cost In 2022?
3. Mineable. There are two ways you may earn cryptocurrency. One is using the Proof of Work mechanism for conventional mining. This strategy is used by bitcoin miners to increase their revenue. The issue with this is that there aren’t many Bitcoins available for mining, therefore the task gets harder every day.
Generally speaking, digital currencies are used as money in the same manner that actual coins are. Similar to the currencies in your wallet or piggy bank, coins like Bitcoin, Litecoin, and Monero may be compared. They frequently have no other utility than being used as money. You use these “cash only” coins to:
- Transferring money (you can give and receive value using them)
- An investment vehicle (they can be saved and later swapped for something useful)
- An accounting unit (you can price goods or services in them)
Some digital currency, like Ether, NEO, and DASH, are more than just valuable as a medium of exchange. These uses are mentioned below:
Ether: The Ethereum network’s transactions are powered by ether (ETH). Ethereum can be used to create tokens, however sending a token still requires ETH. It pays the mining expenses (it pays the computers that verify transactions on the Ethereum network).
NEO: To get a dividend, NEO (NEO) is staked in a wallet. The name of this dividend is GAS. On NEO, much as Ethereum, tokens may be created. Similar to how Ether is used to pay Ethereum costs, GAS must be paid as a transaction fee when transmitting a token on the NEO network.
Dash: Finally, having enough Dash (DASH) enables users to cast votes for critical Dash network decisions. Those who have enough Dash can vote to determine if a suggestion to enhance the DASH network should be implemented. These voting privileges provide DASH owners a say in how the project develops.
Coin Vs Token: What is a Token?
Tokens don’t have a blockchain as currencies do. Instead, they run on the blockchains of other crypto currencies, like Ethereum. BAT, BNT, Tether, and numerous stablecoins like the USDC are some of the tokens that are most frequently seen on Ethereum.
Tokens are dependent on smart contracts if blockchain is used to process cryptocurrency transactions. They are a variety of codes that enable user-to-user transactions like payments and exchanges. Smart contracts are used by every blockchain. ERC-20 is used by Ethereum, whereas Nep-5 is used by NEO.
A token physically transfers from one location to another when it is spent. The trade of non-fungible tokens (NFTs), which are unique things that need manual ownership changes, is an excellent illustration of this. In a manner, NFTs are comparable to utility tokens in that they frequently have only sentimental or aesthetic value; however, you cannot demand any services in exchange for NFTs. Consult a NFT development company if you wish to dive deeper in this regard.
How are Tokens Created?
In truth, it requires remarkably little technical knowledge. Although we wouldn’t suggest it to a total beginner, if they had any programming knowledge, it wouldn’t take as long as you may imagine.
These tasks are often done by a great blockchain development company. However, it does need the developer to contribute some native currency to the blockchain on which the token is being produced.
To convince the network’s miners to approve the token transaction, for instance, the author of the token who is creating it on Ethereum will have to pay part of the cryptocurrency (creation). Not just the creation of the token requires payment of fees; all token transactions on a blockchain must as well.
Therefore, in order to move application-specific tokens between users or between the app and the user, any application built on Ethereum must do so using Ether currency.
Similar to how coin transactions require fees to be paid to those protecting the network, so does this.
Types of Tokens
Crypto tokens resemble assets or even deeds more than cryptocurrency coins, which are models of conventional money. A cryptocurrency token may stand in for a portion of ownership in a DAO, a digital good or NFT, or even a tangible item. Crypto tokens are like currencies in that they may be bought, sold, and exchanged, but they are not a form of money.
To put it another way, crypto coins are more like dollars and cents, whereas crypto tokens are more like coupons or vouchers.
- Some governance tokens grant DAO voting privileges to their owners.
- Access to certain services or goods created by the token issuer may be provided through utility tokens.
- Security tokens behave and are even viewed by several governmental organizations in the same way as conventional securities.
The Use of Tokens
The majority of cryptocurrency tokens are made to be utilized in dapps or blockchain-based projects. Tokens, unlike crypto currencies, are generated and distributed by the project creator rather than being mined. Tokens may be utilized in a plethora of ways once they are in the possession of buyers.
Filecoin: Users of Filecoin (FIL) and Arweave (AR) have the option of exchanging their utility tokens for the right to store data on their decentralized networks, maximizing the potential of cloud storage.
Axie Infinity: One of the most well-known play-to-earn (P2E) platforms on the market, Axie Infinity, offers a utility token called Smooth Love Potions (SLP). Players can carry out unique in-game missions by earning or purchasing SLP.
Cronos: The Crypto.com ecosystem’s utility token is called Cronos (CRO). CRO enables token holders to exchange crypto tokens for fiat at a discounted rate and may be used to pay platform fees or staked for a variety of advantages.
Coins are only used as a form of payment, but tokens may be used to represent a company’s stock, grant access to a good or service, and carry out several other tasks. Coins are forms of money that may be used to buy and sell goods. A coin cannot be used to purchase a token, and vice versa. While a token has a specific application within the project’s ecosystem, a coin works independently.
Although the distinction between a token and a coin is not great, if it is overlooked, you might draw a question mark everytime you stumble upon Coin Vs Token. Paying close attention to the items you purchase might help you determine which one to utilize quickly. Most frequently, you would need coins if it were a product. If it’s a service, you can often use utility tokens. Hire blockchain developers from a leading blockchain development company if you wish to invest in either of those.