The cryptocurrency industry has seen substantial growth in recent years, attracting both investors and bystanders. Some investors see a lucrative opportunity to make money quickly, while others have adopted a more patient approach by reading and understanding the business.
Cryptocurrencies are a new industry with many unique terms for assets and people who are new to the industry may not understand them all.
Understanding the difference between cryptocurrencies and tokens is an excellent place to start for those who wish to master the new world of digital money.
Difference of Token and Coins
The term “cryptocurrency” is often used to refer to both coins and tokens, but they are different concepts. Though coins and crypto tokens share similarities from a user’s standpoint, there are technical differences in how they are built.
Tokens and coins represent different types of blockchain-based assets. The main difference between them is their utility—there are things you can do with tokens that you cannot do with coins, and vice versa. All tokens are considered crypto coins but not all crypto coins are considered tokens.
To sum up, cryptocurrency coins are a form of money, while cryptocurrency tokens represent a product or an idea that can be assigned a price.
What is a Coin?
A coin is a native cryptocurrency created for a specific blockchain. Crypto coins are primarily designed to act as a medium of exchange and store value, in the same way that traditional currencies do. This is why they are also referred to as cryptocurrencies.
All coins have certain characteristics in common:
They operate their own blockchain
All cryptocurrency tokens rely on their own blockchains to operate. This includes original chains and forked versions of those chains, which are known as new chains.
Perform as money
As coins have all the attributes of traditional currencies—security, scarcity, durability, portability, and a store of value—they can be used as money in transactions.
Mining
The validation process for transactions within most blockchain networks is called mining. New coins are created for miners who validate transactions, and fees from transactions are used to reward miners.
List of Crypto Coins
The following are some of the cryptocurrencies that qualify as coins:
Bitcoin (BTC)
Bitcoin (BTC), created by Satoshi Nakamoto in 2009, is the original and leading cryptocurrency. As with most cryptocurrencies, BTC runs on a blockchain or a distributed ledger logging transactions across thousands of computers.
Bitcoin is secured by a cryptographic puzzle called proof of work, which prevents fraudsters from spending the same Bitcoins twice.
Ethereum (ETH)
Ethereum is both a cryptocurrency and an open-source, blockchain-based platform. The platform, which boasts smart contracts and non-fungible tokens (NFTs), is popular with developers because of the potential applications it makes possible, such as decentralized exchanges.
Terra (LUNA)
Terra is a blockchain protocol that employs a Proof-of-Stake consensus mechanism to support decentralized apps (dApps). LUNA is the native digital asset of Terra, which serves as the governance and utility token of Terra.
The Terra protocol enables the creation of stablecoins that track a fiat currency such as the U.S. dollar or euro. LUNA/USDT trading pairs are also available on leading crypto exchanges like KuCoin.
Understanding Token
Tokens are digital representations of assets. They can represent anything ranging from physical goods to access rights to intellectual property.
A token does not require the creation of a new blockchain. This means that a startup can focus on developing its platform instead of worrying about the technical aspects of creating a public ledger.
One of the advantages tokens have over cryptocurrencies is the ability to represent any coins or assets across blockchains, creating a more liquid marketplace.
Types of Tokens
Tokens fall into three categories:
Utility Tokens
Utility tokens provide holders with access to products or services offered by blockchain-based projects. Some utility tokens give holders discounts, rewards, or additional benefits to their holders.
Security Tokens
Security tokens are digital representations of traditional financial securities. Security token holders may have some rights to the entity which issued the tokens, but these rights vary widely depending on how they were created.
Equity Tokens
Equity tokens are a type or subset of security tokens. They function like traditional stock assets and give holders ownership in the company. Holders also have a right to vote on major decisions and a share of the company’s profits.
Final Remarks
A coin and a token are two terms that are often confused when discussing cryptocurrencies. Confusion can be avoided by understanding the differences between the two terms.
To summarize, a key difference between coins and tokens is that a crypto coin is a cryptocurrency with its own blockchain, while a crypto token operates on an existing blockchain.
To decide which payment method to use, you should consider what you are buying. If it’s a product, most often, you would need coins. If it’s a service, there are usually utility tokens you can use.
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