Token vs. Coin: What will you see here?
While these two terms, Coin and Token, are occasionally used interchangeably, they possess distinct meanings. At first glance, they might appear quite similar, but in truth, they serve fundamentally different purposes.
Having the ability to differentiate between crypto coins and tokens is a crucial skill for any cryptocurrency investor.
Therefore, let's delve into the dissimilarities between them and determine if one can be deemed a more favorable investment option than the other. See what Token is and what is Coin, what’s the difference and how they are used.
Crypto Coin: What’s that?
Coins in the realm of cryptocurrency are digital assets that possess their own underlying blockchains and protocols. They function in a manner akin to traditional fiat currencies, primarily intended to be used as payment methods or stores of value.
When people hear the term Cryptocurrency, it is typically the Coins that come to mind - the digital currencies.
Among the most renowned ones are Bitcoin, Ethereum, and Ripple. These cryptocurrencies have garnered significant popularity in the digital financial landscape.
Crypto Token: What’s that?
Unlike Coins, Tokens do not possess their own independent Blockchains; rather, they operate on existing cryptocurrency networks. These Tokens are typically created by various organizations and projects on top of other Blockchain platforms. In this manner, tokens leverage the infrastructure and security of established cryptocurrencies while serving different purposes within their respective ecosystems.
Since digital Tokens and their "original" coin utilize the same Blockchain, they might exhibit certain similarities and often maintain compatibility. Nevertheless, it is important to note that Tokens are not primarily designed to function solely as a store of value or a payment method like Coins.
Instead, Tokens represent a distinct asset type, serving various purposes within their specific ecosystems and projects.
Numerous Blockchains facilitate the creation of Tokens, but among the most popular and widely used is Ethereum.
All Tokens rely on a technology known as Smart Contracts, and they share four defining characteristics. These characteristics are as follows:
All parties involved should be able to see the transaction history.
Tokens are created through smart contracts, so everyone should clearly know their functionality, purpose, etc.
Tokens are a decentralized technology; therefore, they do not have a single governing body, but their trustworthiness is fully entrusted to the crypto community.
Tokens should be available to everyone.
How can we use Tokens?
First and foremost, Tokens can be utilized similarly to coins, serving as speculative assets that investors can invest in. However, unlike crypto coins, tokens have tangible purposes and can also represent physical assets or even specific utilities and services.
Tokens offer crypto projects the ability to grant specific users’ special access to a variety of privileges, such as exclusive merchandise sales, decentralized applications (dApps), blockchain-based games, and other exclusive services.
Additionally, they can be used as voting mechanisms, such as the Chiliz Token, which football or other sports fans use to vote upon favorite teams' decisions.
Later, Chiliz started operating on it’s own blockchain, therefor becoming Coin.
What types of Tokens are there?
Tokens can be categorized into various sub-groups based on their design and intended purpose. Let's explore some of the most common ones in detail.
Non-Fungible Tokens (NFT)
NFTs, short for non-fungible Tokens, are likely the most renowned type among this list. Unlike other tokens, NFTs do not possess practical utility and are predominantly treated as luxury items.
Each non-fungible Token represents a unique and distinct asset, setting them apart from fungible tokens, which can be exchanged on a one-to-one basis with other Tokens of the same value.
Non-fungible tokens essentially act as digital certificates of ownership, serving to authenticate the uniqueness and ownership of specific digital assets.
Utility Tokens offer their holders access to a range of goods and services within a particular platform or digital ecosystem. In some cases, these Tokens grant users the right to interact with the platform or access specific digital products.
Security Tokens are intrinsically linked to external assets that hold value and can be traded as securities. These Tokens effectively Tokenize assets like bonds, stocks, real estate, and other forms of investment. Due to their association with traditional securities, the issuance and exchange of security Tokens are subject to strict regulations imposed by various financial authorities. Compliance with these regulatory frameworks ensures investor protection and upholds the legal integrity of these Tokenized securities.
What’s the difference between Token and a Coin?
The primary distinction between Coins and Tokens lies in the presence of their own Blockchain. Coins have independent blockchains, whereas tokens rely on existing blockchain networks.
Furthermore, Tokens are typically designed with specific purposes in mind, which means their valuation is influenced by factors beyond the basic laws of supply and demand and market speculation. This holds true for some Coins as well, especially those with additional features like Ethereum or Coins that can be used for payments in certain places, such as Bitcoin.
These extra functionalities contribute to shaping the value and utility of both Coins and Tokens in the evolving landscape of the cryptocurrency market.
Some Coins and Tokens mentioned here in this Blog could be Purchased on Cryptal using Convert or Spot Exchange functionality with couple of clicks!
Summary: Everything about Tokens and Coins
Now you know the difference between Token and Coin. Understand that the token does not have its own Blockchain and uses the coin network to operate.
You also know how many and what types of Tokens exist and what their purpose is. Which asset to use for investment potential.
Regardless of the definitions, both Tokens and Coins are integral and important parts of the crypto world.