Token vs. Coin – What’s the Difference?

difference between coin and token

October 14, 2020

Reading Time: 3 minutes

The emergence of cryptocurrencies has progressed the financial systems around the world. With its innovative technology, cryptocurrencies have evolved conventional systems with optimized tools under a decentralized ecosystem, with millions of users and asset holders.

A lot of newcomers in the crypto world have a hard time navigating the jargons and technical terminology thrown around on a daily basis. This new coin has just made 500% gain, or that token is the hottest token to buy. For a novice trader differentiating between a coin or a token isn’t simple. So today, we’ll be discussing the variants of Cryptocurrencies available in the market.  Cryptocurrencies are often referred to as “Cryptocurrency Coins,” or “Cryptocurrency tokens,” however, these two terms are entirely different and unique to their functionalities, we will be explaining the core differences between the two so you can learn about it once and for all.

Before we dive into differentiating between the two instances, we need to understand what cryptocurrencies are. Cryptocurrencies are digital assets that are encrypted using cryptographic algorithms and powered by blockchains. Both Crypto Coins and Crypto tokens are digital currencies called Cryptocurrencies. In this guide, we’ll find Coin and Token difference and discuss their details as well.

What are Coins?

Crypto coins are primarily digital assets unique to blockchains. One notable example is the popular crypto asset, “Bitcoin.” Bitcoin is digital assets or coins native to the Bitcoin blockchain.

Transactions and transference of digital coins exist within the blocks of the blockchain. No physical coins exchange hands, their records are stored on a decentralized public ledger that keeps track of all transactions and verifies them through computational power.

These are primarily used as currencies they mainly operate as a physical coin would with monetary value. Digital coins are stored in user wallets. Check our article on the best wallets for users.

BTC, Monero, Ether, are all examples of Crypto coins that are exchangeable, independent, movable, and are limited in supply. They are primarily used like physical cash; to pay for things. Interestingly, Ethereum’s coin, Ether, has a role beyond a coin with monetary value.

Moreover, they can be bought or mined through various exchanges. There over 2000 digital assets that circulate across several exchanges. Crypto Coins have allowed users to attain anonymity under a decentralized ecosystem while all transactions are recorded on the publicly distributed ledger. Although the anonymity and decentralized nature blockchain solutions have gained traction from malicious users, users, and platforms around the world are doing their best to counteract the malice.

There are also many different types of crypto coins; one distinct variation is the ‘Altcoin.’ The altcoin is an alternative currency native to individual cryptocurrencies. These coins are forks of more significant, notable coins. Litecoin is an example of an altcoin that was developed on top of Bitcoin’s open-source protocol. Simply put, an Altcoin is a digital coin that doesn’t have its own blockchain.

What are Tokens?

The prime difference between Crypto Tokens and Crypto coins is the emphasis of a Blockchain. Tokens are based on existing blockchains. Interestingly, Ethereum is the most notable platform that creates tokens thanks to its smart contracts. A great example of this are ERC-20 Tokens, which are built on the Ethereum platform.

Tether, Band, and EOS are some popular and upcoming tokens based on the Ethereum platform. Creating Tokens is quite easy in contrast to coins. To create coins, users need in-depth insight into different protocols, data structures, hashing methods, and blockchains. However, Tokens can be created through simple user-created templates that are readily available on the internet.

Coins need a separate blockchain and miners to moderate and aggregate blocks into the system; however, Tokens are built on top of already-built blockchains, therefore, saving a lot of time, energy, and costs.

While Crypto Tokens can be used for monetary purposes,  they serve a different purpose. Tokens are used mainly in Decentralized Applications based on Platforms. Tokens allow users to access the Application’s functionality. Users cannot access Apps without Tokens.

There is an array of different tokens unique to their functionalities and features. Security Tokens and Utility Tokens are the most common type of tokens that users use. Security tokens primarily denote shares or securities that hold monetary value. These tokens are usually sold during ICOs for investors to obtain. Today, several ICOs take place when dApps are primarily launched.

ICOs are fundraisers where upcoming start-ups offer their tokens in exchange for cryptocurrencies, primarily Bitcoin and Ether. Investors worldwide take part in ICOs to buy thousands of tokens. Upon the completion of ICOs, these tokens are made available on various exchanges.

Conclusion

While Crypto coins and Crypto tokens may have little to no differences from a nascent perspective; however, they’re very different. To summarize, Crypto coins have unique blockchains that moderate them, while Tokens are based on existing blockchains.

Coins are primarily used as an asset or means of payment. Bitcoins are accepted in a variety of places such as restaurants, cafes, and services. Although Tokens are also recognized as a means of payment, they’re primarily used to access the functionalities of various dApps.

Interestingly, both coins and tokens are also means of investment. Traders and investors monitor price fluctuations and capitalize on the avenue of opportunities that are available in the cryptocurrencies market.

1 Comment

  1. Jaydon

    I guess I can have a good laugh at myself… lol
    If anyone had asked me the difference between a token and a coin, I would have said
    Tomayto-Tomahto. Many need to see this!

    Reply

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