Understanding the Difference
At one point in our crypto journey, a good number of investors have misunderstood and possibly referred to a crypto Coin as a Token.
Looking at the basics, a coin and a token are similar as they are both used for payments, can be swapped for each other, and are forms of value. Asset Utility however is the major difference between the two.
As of November 2021, there are nearly over 7500 cryptocurrencies worldwide.
For instance, coins are used in certain circumstances while tokens are used for a different thing entirely. Crypto users possess coins as well as tokens.
In this article, I’ll highlight key differences between a crypto coin and a token
|Cryptocurrency Coins||Cryptocurrency Tokens|
|Crypto coins can be secured on a blockchain||Token adopts the Blockchain of other crypto coins e.g ERC-20|
|It serves as a means of exchange||Change of ownership is done manually|
|It can be mined or staked||Most tokens can be staked not mined|
|Coin transfers are virtual||It is easier to create tokens|
• A crypto token is a form of cryptocurrency that mirrors assets or defined use which stay on their Blockchain.
• A crypto coin is a type of currency used to make payments for goods and services digitally.
• Other functions of tokens include; a store of value, trading, staking, swap, sending and receiving payments, fundraising, etc.
SEE ALSO: Best 10 ERC20 Tokens On the Market
SEE ALSO: What Are Composable Tokens ERC998 Used For?
What is a Crypto Coin?
A crypto coin is a digital asset that is secured by cryptography which makes it almost impossible to counterfeit and free from double-spending.
Like real-life Fiat currency, a coin has its distinct features:
1. Crypto coins can be secured on a blockchain
The blockchain network takes records every transaction involved on its respective blockchain network, securing the record forever.
Take an example, when you send Bitcoin to a person, the Bitcoin blockchain receives its receipt however, the receipt is sent to Ethereum Blockchain when another person sends you Ethereum. Encryption secures every transaction.
2. It serves as a means of exchange
Bitcoin’s creation aims to replace conventional money. Other coins like Ethereum, Litecoin, etc were additionally created due to the transparency and anonymous nature of Bitcoin.
In El Salvador, Bitcoin is an official currency, and corporations such as Tesla, Microsoft, and Amazon allow payments to be made with crypto coins.
3. It can be mined or staked
Crypto coins can be earned using two methods.
• The first is on the PoW system (Proof-of-Work) via traditional means of mining. Individuals who hunt Bitcoin use this means to increase their revenue but, the amount of Bitcoin left to be mined is little so the process gets harder every day.
• The second is on the PoS consensus (Proof-of-Stake) using a modern means to earn coins. The energy consumed is lighter and it is easy. A major coin that uses PoS is the Cardano.
What are Tokens?
Crypto tokens differ from coin in a way that tokens represent digital assets created for a specific use that resides on their own blockchain.
1. Token adopts the Blockchain of other crypto coins
Tokens are most time a fork or an extension of some coins and are built on existing blockchains like Ethereum. Common tokens on Ethereum’s Blockchain are USDC (Stablecoins), Tether, BNT.
In contrast to coins, which are supported by Blockchain rather, Tokens depend on Smart contracts to handle their transactions. This is an arrangement of codes that boosts trading or payments amongst users.
Every Blockchain makes use of its smart contract like Tron uses TRC-20, Ethereum for ERC-20, etc.
2. Change of ownership is done manually
An example is trading non-fungible tokens. They are unique hence, the shift in r ownership is done manually.
Crypto coins changes account balance but do not move about. Like money, when a transfer is made, it doesn’t go from one bank to another physically. Changes are made to the balance of both accounts and fees kept by the bank.
3. It serves as assets or deeds
A token is simply what an individual owns. The existence of tokens goes as far back as before the emergence of cryptocurrency and each of us has used it.
For example, when you buy a land or car, the value of that property/title is transferred to you. Coins represent what you can possess.
4. It is easier to create tokens
Several networks e.g. Ethereum offers templates for Individuals to design their tokens and commence trading. See how to create your own crypto for free.
Through this method, anyone can become a market maker whether or not they have technical knowledge. DEX (Decentralized exchange) platforms like Uniswap are known for this.
Frequently Asked Questions (FAQs)
1. What is a token?
It is a cryptocurrency denomination or virtual token which illustrates assets that can be traded or blockchain-based utility that can be used for investment or economy by its holders.
2. What differs crypto coins from tokens?
While coins enable people to pay for goods/services with digital currency, tokens are used for much more such as currency form, trades, stakes, storing value.
3. What is Bitcoin?
A Bitcoin is a cryptocurrency that possesses coins and virtual tokens useful for trades and payments.
4. What are cryptocurrencies?
They are currencies digital or virtual that make use of cryptography and is hard to duplicate
Coins and tokens do not have much that differentiates them yet, they are quite confusing. The best way to decipher which you need is through function.
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