Crypto industry, like any other industry, has a rich terminology. The frequent question that is asked of every newcomer who has just come into the industry and started his or her journey – What is the difference between a coin and a token? Many people, for lack of knowledge, think it’s the same thing, but it’s not. In this article, we will go through each of these terms and show what differences there are between them.
Coin
Coin is an asset or coin of blockchain. The most popular and well-known among koin can be called – Bitcoin, Etherium, Litecoin. They’re in their blockchain. Within the network, users can transfer an asset to each other, but there is no physical exchange. Coin is expressed in digital code that moves within the network of its blockchain.
Kinds
According to CoinMarketCap, there are currently more than 8,000 cryptocurrencies, including all coins tokens and altcoins. The erroneous assumption is that all digital currencies other than Bitcoin are altcoins, but this belief has existed for so long that many have become accustomed to it. The reality is a little different. Altcoins are coins whose blockchain is made on bitcoin blockchain, among the best known being Dogecoin, Litecoin.
Digital coins are those coins in which the blockchain is individual, not based on any other. For example Bitcoin, Etherium, Monero.
Application
Coin is often used as a payment system. How do you can use it:
- Transfers. Fast, cheap, and cross-border. This is a good distinguishing feature of scripts from traditional payment systems.
- In some countries, cryptocurrency can be used by purchasing goods and services.
- Coins are also a good trading instrument. Here already at your request: Trading or investment.
If you take Bitcoin, then it has all of the above. But it has a limited number of spheres, since bitcoin is the first cryptocurrency. Therefore, there are other cryptocurrencies where other features have already been implemented:
- Etherium. ETH is the second-most capitalized coin after Bitcoin. A good difference is that there are smart contracts inside the Ethereum network. It’s an app that’s inside the blockchain and has the meaning of a digital contract. Let us give an example of how this works: a borrower can borrow money from a lender while leaving a digital asset as collateral. If the borrower returns the money on time, the smart contract is automatically closed and the asset is returned to him. But if it fails to repay, the creditor is given a digital object. It is worth noting that the original terms of the smart contract cannot be changed, meaning that the parties will have to fulfil what was originally agreed.
- NEO is an ecosystem that receives dividends for storing coins. The dividends can be used as a means to pay the commission for online transfers. You can also create your own tokens here.
- Dash cryptocurrency holders have the ability to influence project development. Within the network, votes are held where any coin holder can participate and thus influence the choice of the vector of development.
Token
A token is a coin that is created on the blockchain network. The most popular are tokens created in the Ethereum network. Therefore, most often you can see the ERC-20 standard in the token. There are other platforms on the basis of which you can create a token, but it will be less in demand.
Almost anyone wishing to do so can create their own token if they have some knowledge of the cryptocurrency in the ecosystem in which the project will be deployed. The cryptocurrency is used to pay miners to confirm the creation of the token. After that, any transaction within the network will be charged a commission.
From this it can be understood that a token can be created on the basis of any blockchain of interest, simply it will be necessary to pay a commission for the operations that will be carried out. Because of this, quite a lot of crypto projects have been implemented, because it is much cheaper than creating your own chain of blockchain.
The advantage of using tokens:
- Many projects can be created in the network, which offer a wide variety of services. They, in turn, can reach vast audiences and information. This can create a larger knowledge base on blockchain where information cannot be deleted or altered.
- Thanks to the considerable functionality of decentralized applications, any project can become a reality.
- Users and creators can interact within a single network, which in turn minimizes risks and optimizes the services offered.
Kinds
There are four main types of tokens that can be noted:
- Token-provided with a real product. The same USDT. Which is equal to one US dollar.
- There are also investor tokens. One can draw analogies with traditional growth shares in markets. The token is bought at the start, hoping for its further growth. This type of token was very popular during ICO 2017-2018.
- The token can be used as a coin to pay for goods and services.
- Service tokens. Such tokens as a unique pass to functionalities of different platforms. They are created to perform technical functions and have no cost.
Application
The token can be used in various fields. Let’s analyze the most interesting ones:
- A large number of tokens can be used in decentralized applications. There are financial, partly financial, and non-financial tokens.
- Tokens can be used to express real-life objects.
- There are native tokens that cooperate with service providers. One example is Civic. If you choose to fly anywhere by an airline that cooperates with Civic and you hold a CVC coin, you can safely send your contacts to that airline in the form of a QR code. It will contain all the necessary information, which will greatly shorten the registration time.
The main differences between a token and a coin.
| Parameter | Coin | Token |
| Definition | A digital coin used to pay for goods and services, as well as an investment instrument. | A digital asset that has many uses, but also coin can be used to pay for goods and services. |
| Application | It can be used as virtual funds. Make transactions and make purchases of various products. | The only difference from coin is that it can be used to provide rights and access to services. |
| Blockchain | It runs on its own blockchain. | It exists on the basis of third-party blockchains. |
| Comparison | Coins can be compared to a traditional currency. Because in some countries it is possible to earn wages in digital currency, to pay for goods, to pay for housing. | Often tokens can be used to claim rights to something. An analogy can be drawn with a certificate in a service industry, when you purchase a certificate, you get the right to use the service. |
| Creation | Coins are often obtained by miners and powerful equipment. | All tokens are created at the beginning of the project, and distribution and application depends on the company’s policy. |
Conclusion
From this article you now have an understanding of what a token is and what a coin is. There is an understanding of their differences. This will now make it easier to choose an investment instrument and a company. But it is worth understanding that tokens are as good as coins in their advantages. After all, the creation of its blockchain, not a cheap occupation, but because of the ready blockchain, the community saw enough good projects that would not have arisen due to lack of money for the creation of its blockchain.