Coins Versus Tokens

In the sense of cryptocurrencies, recognizing the distinction between coins and tokens is a Herculean job. While both of these terms are sometimes used interchangeably, in the crypto ecosystem, they refer to two distinct definitions.

While using these words interchangeably per se is not an offense, to learn more about the future of crypto and blockchain, one must comprehend a simple understanding of coins and tokens.

Coins

Coins apply to cryptocurrencies based on the network of their independent blockchain. Bitcoin (BTC), which is also the world's biggest cryptocurrency by market capitalization, is the most popular example.

Bitcoin is operated by its native network of blockchains. Likewise, on their respective blockchains, Litecoin (LTC) and Ethereum (ETH) run. The scale, rules, miners, efficiency, etc. of these blockchains will differ.

Bitcoin (BTC), Ripple (XRP), Ethereum (ETH), Dogecoin (DOGE), Litecoin (LTC), and Bitcoin Cash are some of the common coins (BCH)

How it is used

Digital coins are intended for the same reason as physical coins: value transfer. Digital coins in the crypto ecosystem allow payments to be transferred. Digital coins often store value that is directly related to their supply and demand. The value of digital coins is, therefore, always unpredictable.

However, there are a number of exceptions to this. For example, ownership of Dash (DASH) would allow the client to vote on the DASH network's suggested decisions. However, in the case of Bitcoin, buying or mining them is the only way to get more Bitcoin. You may also consider Bitcoin as a form of payment, unless we forget.

Token

Tokens, meanwhile, refer to cryptocurrencies that don't have their own blockchain network. Alternatively, these cryptocurrencies are constructed on another blockchain. Users may use one of the many platforms in the DeFi (Decentralized Finance) ecosystem to build digital tokens.

Thanks to its support for smart contracts, Ethereum is one of the most common options. Since the Ethereum platform easily allows the production of tokens on top of the Ethereum blockchain, most of the digital tokens found today are ERC-20 tokens.

Thousands of tokens currently exist on the market. Some of the commonly-used digital tokens out there are Tether (USDT), USD Coin (USDC), DAI, UMA, and Basic Attention Token (BAT). Other than value transfer, these tokens can have powers.

How it is used

Much like digital coins, tokens also allow value to be transferred. A digital token, however, has some additional powers in most cases than being a means of payment. To meet unique functionalities, anyone can build digital tokens.

For example, in order to reward its users for browsing the web, a privacy-focused Brave browser uses the Basic Attention Token (BAT). When they view ads from publishers that have collaborated with the Brave browser, clients get paid in BAT.

For different purposes, various kinds of digital tokens exist.

Security tokens function in real-world assets such as equities and fixed income as evidence of investment. These are issued during the offering of security tokens (STO).

Utility tokens are designed to offer a specific service or product access. The FIL token will, for instance, access the Filecoin network.

Asset tokens are digital tokens connected to properties such as real estate, gold, etc. in the real world. In this case, the real-world investment is represented by a token

Stablecoins are digital tokens whose value is set. These are also pegged against USD or EUR fiat currencies.

Non-fungible tokens are special objects that can be true or virtual. An instance of these tokens is the objects used inside a game.

Payment tokens are almost identical to digital coins because, for goods and services, they allow a transfer of payment in return.

To get rid of intermediaries as well, some services build payment tokens. The client will be compensated for using these tokens over a standard payment system in most instances. Compared to creating a coin from scratch, it would take significantly less time to construct a token using the Ethereum platform.

The Difference

To sum up, the following are some of the main differences between a digital token and a digital coin:

• Their blockchain network has digital coins, but tokens are based on an existing blockchain.

• For processing payments, digital coins may be used, but tokens are sufficient for multiple needs.

• It is harder to build digital coins than tokens that can be created on the basis of existing blockchains such as Ethereum.

Digital coins are mostly distributed through mining, while ICOs have made tokens common.

Approaching cryptocurrency markets is a daunting challenge, but knowing the fundamental difference between the different types of cryptocurrencies in a volatile environment will help you manage risk and make informed decisions.