Have you ever said “crypto token” or maybe “crypto coin”? If so, we want to warn you that these forms are incorrect. These two definitions have different meanings, so now we are going to find out what is the difference between crypto coins vs tokens.
First, a cryptocurrency coin is a digital currency typically native to its respective blockchain. A cryptocurrency token is designed for use within a decentralized project on an established blockchain. So as you can see, these are two blockchain-related items. Let’s proceed and get more detailed information about each of them.
What is a Coin?
A crypto coin, short for cryptocurrency coin, is a type of digital or virtual currency that operates using a technology called blockchain. Cryptocurrencies were first introduced in 2009 when the enigmatic figure known as Satoshi Nakamoto created Bitcoin, the pioneer of all cryptocurrencies. Since then, numerous crypto coins have been developed, each with its unique features and purposes.
You may know them from
ENON platform, news, memes, and social, but here are some examples of coins:
Ethereum (ETH): is more than just a cryptocurrency; it’s a platform for building decentralized applications. Ether (ETH) is its native cryptocurrency, used for transactions and smart contracts on the Ethereum network.
Litecoin (LTC): Created by Charlie Lee, Litecoin is often referred to as the “silver” to Bitcoin’s “gold”. It offers faster transaction confirmation times and a different hashing algorithm.
Ripple (XRP): Ripple is designed for fast and low-cost cross-border payments. XRP is the cryptocurrency used within the Ripple network.
Each of the coins has its purpose and value. We provide you with the most known examples of crypto coin and now let’s talk about its assignment.
What are crypto coins for?
Important to realize that many crypto coins, like Bitcoin, are designed to be used as digital currencies. They can be used for buying goods and services, transferring value globally, and acting as an alternative to traditional fiat currencies. Some cryptocurrencies, such as Ethereum’s Ether (ETH), play a vital role in executing smart contracts. These self-executing contracts automate agreements and processes without the need for intermediaries.
Certain crypto coins function as utility tokens within blockchain-based applications and ecosystems. They provide access to specific services, features, or resources within these platforms. Talking again about Bitcoin, cryptocurrency similar to it are often viewed as a digital store of value, similar to gold. Investors and users hold these coins as a long-term investment or as a hedge against inflation. Staking coins, like Cardano’s ADA or Tezos (XTZ), enable users to participate in network validation and governance. Stakers are rewarded for securing and maintaining the blockchain.
Certain coins, such as Monero (XMR) and Zcash (ZEC), focus on enhancing user privacy and transaction anonymity. Also, some blockchain projects raise funds by selling crypto tokens through initial coin offerings (ICOs) or token sales. These tokens often represent a stake in the project or offer specific rights.
What is a Token?
So what is a token in crypto? A token is a digital asset or unit of value created and managed on a blockchain. Unlike cryptocurrencies, which have their independent blockchains (e.g., Bitcoin, Ethereum), tokens are typically built on existing blockchain platforms, such as Ethereum, Binance Smart Chain, or Polkadot. So as you can see, tokens are more a part of the crypto blockchain.
Each token can vary and, as a crypto coin, has its purpose. Here are the main of them:
Utility Tokens: These tokens are designed for use within a specific blockchain-based platform or application. They provide access to services, products, or functionalities within that ecosystem. Examples include Ethereum’s Ether (ETH) and Binance Coin (BNB).
Security Tokens: Security tokens represent ownership or investment in real-world assets, such as stocks, bonds, or real estate. They are subject to securities regulations and often serve as a bridge between traditional finance and blockchain technology.
Non-Fungible Tokens (NFTs): NFTs are unique digital assets that represent ownership of specific digital or physical items, like art, collectibles, or virtual real estate. They are indivisible and have gained popularity in the digital art and gaming industries.
It was the most popular example of tokens, now it is time to figure out what is the purpose of tokens.
What are tokens for?
Tokens serve a variety of purposes within blockchain ecosystems, depending on their type and the specific platform or application they are associated with. They can be used to access and pay for services, products, or features within a specific blockchain-based platform or application. They act as a form of digital currency within that ecosystem. Some tokens, like Ether (ETH) on the Ethereum network, are essential for executing smart contracts. Smart contracts are self-executing agreements that automate processes and enforce agreements without the need for intermediaries.
And what about NFT?
Non-fungible tokens (NFTs) are unique digital assets that represent ownership of specific items, for example, digital art, collectibles, or virtual real estate. They are used to prove ownership and authenticity. Tokens are often used to incentivize network participants. They can be rewarded to users who contribute to the network’s security or liquidity, like stakers in proof-of-stake networks or liquidity providers in decentralized finance (DeFi) platforms.
Some tokens serve as bridges between different blockchain networks, enabling the exchange of value or assets across multiple platforms. The goal of tokens is huge, as they can carry out several functions depending on their type.
Crypto Coins vs Tokens
Let’s see the main difference between tokens and coins:
Point Tokens Coins Function Have a wide range of use cases. They can represent ownership, access to services, voting rights, or participation in specific ecosystems. Tokens are more versatile and can serve various purposes within their associated platforms Primarily serve as digital currencies. They are used for financial transactions, transferring value, and store of value. Bitcoin, for example, is primarily a digital currency Blockchain Dependency Are built on existing blockchains Have their own independent blockchains. Examples include Bitcoin (BTC), which operates on the Bitcoin blockchain Transferability Typically requires a smart contract or specific token standard to facilitate transfers. This means that the parent blockchain’s functionality is often leveraged to transfer tokens Can be transferred directly between users on their native blockchain without the need for a smart contract or intermediary Creation Can be created, issued, and managed by individuals or organizations through smart contracts or token-creation platforms. The issuance of tokens is often more flexible and controlled Typically created through a process like mining or minting and follow a predetermined issuance schedule
In summary, the crypto coins vs tokens difference lies in their underlying technology, use cases, and functions within the blockchain ecosystem. Coins are standalone digital currencies with their blockchains. Tokens, on the other hand, are versatile and operate on existing blockchains, and this is the main difference. Of course, it also has some more differences in use cases, but at least you know that tokens are not the same as coins.
Is Bitcoin a token or a coin?
Bitcoin is a cryptocurrency and is considered a coin, not a token. It operates on its own Bitcoin blockchain
Are tokens better than coins?
Tokens and coins serve different purposes, so one is not inherently better than the other. Coins are primarily digital currencies, while tokens have a broader range of uses within blockchain ecosystems.
Can a token become a coin?
No, a token cannot become a coin. Tokens and coins have distinct characteristics, and a token remains a token even if its use case or value changes.