Digital money has arrived, but the new jargon can be difficult to understand. Understanding the distinction between crypto coins and tokens is a good starting point for mastery of this world.
At some point in their cryptocurrency journey, almost everyone has confused a token with a coin. The truth is that a coin and a token are fundamentally similar.
They can both represent value and accept payments. Coins can also be exchanged for tokens and vice versa.
What is a Crypto coin?
When it first appeared, Bitcoin defined what it meant to be a coin. There are distinct differences between crypto coins and tokens, which are analogous to real-world money.
A Crypto coin is defined by the following features:
- Operates on blockchain technology:- A blockchain keeps track of all transactions involving its native cryptocurrency. When you use Ethereum to pay someone, the transaction is recorded on the Ethereum blockchain. If you later receive payment in Bitcoin from the same person, the receipt is added to the Bitcoin blockchain. Each transaction is encrypted and available to all network members.
- Acts as a currency:- Bitcoin was created solely to replace traditional currency. Other coins, such as ETH, NEO, and Litecoin, were inspired by the paradoxical appeal of transparency and anonymity. Bitcoin, along with the US dollar, has recently become an official currency in El Salvador.
- Can be mined:- There are two ways to earn crypto coins. One method is to mine using the Proof of Work system. This method is used by Bitcoin hunters to increase their earnings. The issue is that there aren’t many Bitcoins left to mine, so the process becomes more difficult by the day.
What is Crypto Token?
Tokens, unlike coins, lack their blockchain. They instead run on the blockchains of other crypto coins, such as Ethereum. Some of the most common tokens on Ethereum are BAT, BNT, Tether, and various stablecoins such as the USDC.
Tokens rely on smart contracts if crypto coin transactions are handled by blockchain. They are a set of codes that allow users to trade or pay each other. Each blockchain employs its smart contract. Ethereum, for example, employs ERC-20, while NEO employs Nep-5.
How do Crypto tokens work?
Every cryptocurrency token represents a tradable good. This can include coins, points, certificates, in-game items, and so on. This means that crypto tokens can be used to represent a company’s stock or as voting rights in the central committee.
They are commonly used to raise funds via a crowd sale. As a result, they are also known as cryptocurrency assets, crypto assets, and crypto equity.
The creators of a particular digital token can choose to list their token on a cryptocurrency exchange. Users can now buy and sell the token after the initial coin offering has concluded.
But, Are Tokens the Same as Coins?
Coins and tokens, like fiat currency such as dollars, euros, yen, and so on, serve as a store of value. However, there is a critical distinction: digital coins are a type of money, whereas digital tokens represent something that can be assigned a price.
Tokens and coins both appear on a blockchain, which is an encrypted record of digital transactions–a public ledger. For example, the Ethereum blockchain is a record of Ether coin transactions.
The blockchain tracks the exchange of Ether coins or Ether-based tokens. Individuals and businesses keep their coins in digital “wallets” that are protected by a unique password.
Difference Between Cryptocurrency Tokens and Coins.
While many people use the terms “crypto coin,” “crypto token,” and “cryptocurrency” interchangeably, they are not synonymous. Even though both coins and tokens use distributed ledger technology (also known as blockchain technology), there are some significant differences between the two.
Crypto coins are a type of digital currency that is often native to a blockchain and serve the primary purpose of storing value and acting as a medium of exchange.
Crypto tokens, on the other hand, are digital assets built on top of an existing blockchain (via smart contracts) and can serve a variety of functions, ranging from representing a physical object to granting access to platform-specific services and features.
Examples of Popular Cryptocurrency Coins
- BTC (Bitcoin): Bitcoin, the world’s first and most well-known crypto coin, was launched in early 2009 by the mysterious ‘Satoshi Nakamoto.’ Because of its early start, it has become the most valuable cryptocurrency.
- ETH (Ether): It’s more than just a cryptocurrency, it’s a blockchain that has become immensely popular because of the development and implementation of smart contracts. Thousands of blockchain projects and NFTs have found a home on Ethereum.
- ADA (Cardano): It is an open-source and decentralized blockchain platform that was among the first to use a PoS consensus, earning it a reputation as a green crypto coin. Cardano was founded in 2015 by Ethereum co-founder Charles Hoskinson and uses its coin ADA to facilitate peer-to-peer (P2P) transactions.
Examples of Popular Cryptocurrency Token
- Filecoin (FIL) and Arweave (AR): It allows users to spend their utility tokens to store data on their decentralized network, pushing the concept of cloud storage to its full potential.
- Cronos (CRO): It can be used to pay platform fees or staked for various benefits, and it allows token holders to exchange crypto tokens for fiat at a discounted rate.
Crypto tokens are currently a niche and contentious topic. If current trends continue, they will be regarded as a watershed moment in the design and development of open networks. This is made possible by combining the societal advantages of open protocols with the financial and architectural advantages of proprietary networks.
They are also a very promising development for those who want to keep the internet open to entrepreneurs, developers, and other independent creators.
Blockchain technology, as well as digital coins and tokens, will continue to find new applications. As a result, the general acceptance of these assets will grow, increasing their value and utility.
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