What Is the Difference Between Coins vs Tokens?: Once you start learning something new, you will inevitably come across a huge number of specific terms. And in order to understand what it is about, you have to find out what each of them means. The cryptocurrency market is no exception. In the first, arbitrarily open article, we will talk about coins, tokens, altcoins, stablecoins, fiat currencies in different combinations.
It is really not that easy to understand the differences between coin vs token, but it is possible and necessary. Yes, these terms are often used interchangeably, but they refer to very different concepts of the crypto ecosystem.
While interchangeability of terms is acceptable, it is really necessary to clearly understand the difference between coins and tokens. This will significantly simplify further acquaintance with the world of cryptocurrencies and blockchains.
Table of Contents
What Is a Coin
The most famous coin of the crypto world is Bitcoin. It is the constant leader of the cryptocurrency market in all respects: from popularity to market capitalization. A coin is a cryptocurrency created on an independent blockchain network.
This is how the longtime market leaders Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ripple (XRP), as well as some rising stars Dogecoin (DOGE) and Shiba Inu Coin (Shib) work.
How to Use Digital Coins
The functions and properties of digital coins are almost the same as those of fiat currency. They are used to convey value. Among the possibilities of almost any solid platform is the possibility of fast and inexpensive money transfers to anywhere in the world. They also store and accumulate the value associated with supply and demand. The supply / demand ratio is very dynamic and the value of coins is not constant.
Digital coins can be bought, sold, exchanged, received as payment for services or goods, and also mined.
What Is Token
Shares are the closest analogue of tokens in the physical world. The tokens do not have their own blockchain and are built on other blockchains. Users can create these assets by leveraging the power of the Decentralized Finance (DeFi) ecosystem.
Ethereum leads among the most popular tokens. It gained popularity due to the implementation of the idea of smart contracts. Since it is possible to create tokens on the Ethereum platform on top of the blockchain, most of the currently existing assets of this type comply with the ERC-20 standard.
How Tokens Are Used
They can be used in the same way as digital coins. However, they may have other functions as well. Specifically, the Brave browser rewards users for web browsing with its own Basic Attention Token (BAT).
There are several types of tokens for different purposes:
- Security tokens confirming investments in real assets;
- Utility tokens for granting access to services or products;
- Asset tokens associated with physical assets such as bank metals, real estate, collectibles;
- Stablecoins have a fixed value, often pegged to fiat currencies;
- Non-fungible tokens – virtual or real unique items, such as the well-known CryptoKitties;
- Payment tokens that perform the same function as coins.
An important difference is that the creation of a token is much faster than mining a coin.
Despite the rather significant differences in the method of obtaining and functioning of digital assets, they deserve attention as an investment tool. Which one you choose is solely your decision.