Coin Vs Token: What Do I have?

How long have you been in the cryptoverse? If you are reading this, I would assume that you have been in this insanely complicated universe for more than a couple of hours. And in that short span of time, I believe that you have encountered the words "coins" and "tokens" more than once.

The level of your mastery in cryptocurrency does not matter here, as long as you are wondering what makes a coin different from a token, then this one is for you. Wait? Coins and tokens are different? They are?!

Coins

First off, I am not referring to that gold, silver, or copper circular thingy you have in your pocket or in your purse. This is about the coins we know from cryptocurrency.

Coins in cryptocurrency are the digital counterpart of the coins we have in our pockets. They are designed to be used and utilized the same way as the physical coins. They should be used to buy things, pay for stuff, and saved just like real money.

One trait of coins is that they can also be earned by "working", just like real physical currency too. We can earn coins in the cryptoverse by means of "Proof of Work" mining and/or by utilizing the "Proof of Stake" system.

Another major characteristic of a coin is that it is only usable in its native blockchain. Just like in the real world, you can think of the blockchain as a country. Philippine coins are only usable inside the Philippines, the same way a US dime is only good in the United States. Bitcoin is only usable inside the bitcoin blockchain just as Ether is only valid in the Ethereum blockchain.

You can't directly transfer 1 BTC to an Ethereum block. That is where exchanges come in. Just like in real life, we make use of foreign exchange centers to make our Philippine peso be usable in the United States, they will be converted to dollars.

Coins are bound to their respective blockchains.

Some examples of coins are Bitcoin, Ether, Litecoin, and NEO.

Tokens

Although tokens can be used to purchase and buy stuff in the cryptoworld which is pretty much the same as coins, they are not entirely the same as crypto coins. One of their main differences is that tokens don't have their own blockchain and they aren't bound to any single blockchain.

Tokens make use of existing blockchains to function. Just like the token Tether or as we all know it, USDT. Are you surprised? Yes, although we call USDT a "stablecoin" it is essentially a token and not a coin. Are you confused yet? If you look at Tether or USDT, it has no native blockchain, there's no Tether blockchain, its existence is possible because of the Ethereum blockchain and as we know, Ethereum is the blockchain of the coin Ether.

Another characteristic of tokens is that they are created with a specific purpose. And that purpose is not solely to be able to buy stuff or to be traded just like coins. Again, back to Tether or USDT, it's a stablecoin that has a purpose to mimic the US dollar. Its price should always be close or equal to the US dollar. And what's the general purpose of a stablecoin? Traders and investors use stablecoins to store their assets in a "fiat value" when they want to protect their assets from the volatility of the cryptoverse.

A token may also be viewed as a bank certificate. It symbolizes that you have this amount of cash but you can't go to the massage parlor and avail of their services just by using that certificate. Also, tokens are like house or car titles, and any other paper that states ownership.

Aside from USDT or Tether, NFT's are in my opinion the most popular kind of token right now. And if you want to know more about NFT's you may visit my article NFTs: What The Funge?!! for further details.

Another famous token? BNB of Binance.

Notable Difference

Another difference between a coin and a token, anybody, even without much technical know-how can create their own token, but it will take a lot of skills, Satoshi Nakamoto-type of skill to create a new blockchain with a new coin.

Hi!

I hope that somehow, someway, you have a clearer idea of what a coin and a token are. If not, you can drop your questions or clarifications down below and I would gladly impart any or all of my remaining knowledge about the subject.

Thank you for visiting yet again and I really appreciate your time spent here. That's it for this edition of All About Crypto and until we read again...

Cheers!!!

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Series    : All About Crypto
Title     : Coin Vs Token: What Do I have?
Published : 17-Feb-2022
Author :  © RB

References:

Prathap, M. (2021, December 23). Know your cryptocurrency lingo — Crypto coins and tokens are not the same thing. Business Insider. Retrieved February 16, 2022, from https://www.businessinsider.in/investment/news/difference-between-cryptocurrency-coins-and-tokens/articleshow/86552746.cms

L. (n.d.). Crypto Coin vs. Token: Understanding the Difference. Liquid. Retrieved February 16, 2022, from https://blog.liquid.com/coin-vs-token

Face, T. (2021, November 16). Crypto coin vs token: what’s the difference? The Face. Retrieved February 16, 2022, from https://theface.com/life/cryptocurrencies-vs-tokens-the-difference-bitcoin-digital-money-finance

M., L. (2021, November 22). Token vs Coin: What’s the Difference? BitDegree.Org Crypto Exchanges. Retrieved February 16, 2022, from https://www.bitdegree.org/crypto/tutorials/token-vs-coin