Crypto coin Vs. Token - What's the difference?
We have all heard about coins and tokens, but many are still unaware of the difference and whether it’s the coin or the token they’re buying.
Both have different characteristics.
Crypto coins characteristics:
• Operating on a native blockchain that tracks all of the transactions
For example, if you pay something with Ethereum, the receipt goes to the Ethereum blockchain. The invoice goes to the Bitcoin blockchain if the counterparty transfers you Bitcoin. Each transaction is encrypted and each member of the network can view the transaction.
• Acts as a currency and were actually created to replace fiat
Nowadays, it’s possible to buy almost anything using crypto coins. Some of the biggest companies, including Tesla, Microsoft and Amazon enabled crypto coin payments. Not just that, but Bitcoin is the official currency of El Salvador alongside the USD.
• Possibility to be earned/mined
One can gain crypto coins by mining using the Proof of Work, Proof of Stake or other consensus mechanisms. Proof of Work is specific to Bitcoin but, since BTC’s quantity is limited, it is becoming more complicated daily. On the other hand, PoS represents a more modern approach to earning coins since it doesn’t require much electricity.
Tokens do not have their native blockchain but work on smart contracts. Smart tokens are basically an alghoritmically based codes that can accelerate all the transactions between users. Every blockchain has its own smart contract. Ethereum, for example, is using. ERC-20.
Also, some of the most famous coins operate on Ethereum, such as BNT, Tether, and various stablecoins as the USDC.
The point is that a blockchain can only have one native asset coin, and numerous tokens built on top of it.
Coins are used for different use cases. Some of them include governance and/or transactional fees. Because they form the backbone of the blockchain, they have higher intrinsic value.
Token denotes what you own and coins represent what you could own.
Tokens are much older than coins and have been used throughout history in the form of vouchers, car titles, etc. They represent countless real-world use cases, including non-fungible tokens (NFTs), different crypto-brokerage-related fees, stablecoins, gaming tokens, etc.
That means, everything can be tokenized - real estate, journalism, card games or even a movie script. NTFs are a good example, especially in gaming, where some collectible gaming items are offered as rewards for gamers.
The development of digital coins is expensive and complicated process that needs experts, developers, machines, capital and management.
On the other hand, anyone who has a computer and something to tokenize can create tokens.
Many platforms have tokenizing software that can enable users to tokenize almost anything – from birthday cards to to-do lists.
In order to differentiate coins from tokens it’s best to imagine coins as the money required to buy digital assets. On the flip side, tokens represent specific assets and are used to claim ownership or grant rights to the holder.
Author: Teuta Franjkovic
A sincere writer with a strong will to share knowledge on all things blockchain, crypto, metaverse and DeFi. Starting out as a writer with Cosmopolitan, Teuta has risen through the ranks of business journalism, editing newspapers and websites within the fintech industry for over 15 years. She holds a double MA in Public Politics and Entrepreneurship.