Blockchain Education: Crypto Tokens Vs. Crypto Coins
There are so many cryptocurrency terms used every day, and most times they are being misused. Coins and tokens are two crypto terms that are mostly used all the time when talking about cryptocurrencies. But their meaning and usage overlap considerably and they are often used interchangeably.
On a fundamental level, a coin and a token are extremely similar. They both represent value and have the ability to accept payments. Coins can be exchanged for tokens, and tokens can be exchanged for coins.
However, the main difference comes down to utility. You can do things with tokens that you can’t do with coins. It’s just like comparing investors and traders. All traders invest, but not all investors trade.
What are crypto coins?
Crypto coins are the native cryptocurrency of a blockchain, ie, they have their own blockchain. They also serve as a means of payment. Transactions of digital coins can be made from one person to another. However, no physical coins are being moved when you send and receive them. The coins are stored as data in a database.
This database (blockchain) records all of the transactions that take place. When you make a transaction, your coin does not move; instead, the balance is changed/updated, much like your local currency in banks. Examples include BTC of Bitcoin blockchain, ETH of Ethereum blockchain, LTC of Litecoin, and so on.
What are crypto tokens?
Crypto tokens do not have a blockchain. They are being created on another blockchain. As they live on another blockchain, they benefit from its technology. Tokens that are built on the Ethereum blockchain are known as ERC-20 tokens.
One interesting thing about tokens is how easy it is to create one. Ethereum network already provides templates where you can brand your tokens, pay the required fee and start trading your token. Examples include Maker(MKR), Augur(REP), Golem(GNT), and so on.
Differences between coin and token.
- Coins have their blockchain, while tokens do not.
- It’s less expensive to create a token, while it’s expensive to create a coin because coins are built from scratch.
- A token represents what you own, while a coin denotes what you’re capable of owing.
- Tokens can become a coin when they successfully build their blockchain.
- Coins are usually used to make payments, while tokens have use cases like Security tokens, Assets, Non-fungible tokens ( NFTs), etc.
- Another significant difference between coins and tokens is the value they represent. While crypto coins are essentially digital versions of money, tokens can stand for assets or services.
Like I said earlier on, tokens can eventually become coins when the project develops its blockchain and migrates its tokens to the new blockchain as a coin.
An easy way to know the difference between a coin or token is to find out if it has a blockchain or not. knowing this puts you in a better position to use the terms correctly, whenever you want to make use of it.
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