Crypto Coin & Token: Is there a Difference?

Crypto Coin & Token: Is there a Difference?

At a point in a person’s Cryptocurrency journey, almost everyone has confused a crypto coin with a token. Are you one of them? if yes, then this post was made specifically with you in mind. Read on to know their proper definitions and their differences.

You’ve probably seen the words coin and token being thrown around in the crypto space. These words are often used interchangeably, but do you know they actually have two entirely different meanings? The fact is that coin and token are very much alike on a fundamental level. They both represent value and can process payments and you can also swap coins for tokens and vice versa.

* TABLE OF CONTENT

      •    What is Crypto Coin?

        •    What is a Token?

          •    Conclusion

WHAT IS A COIN?

A coin is a cryptocurrency or digital cash that is independent of any other blockchain or platform, they are not intended to serve utility functions - such as to represent votes within a community or to denote storage capacity on a decentralized cloud storage. It operates on its own independent blockchain and acts like a native currency within a specific financial system. Accordingly, it is essentially used as a medium of exchange or store of value within a digital economic network

A coin, as a single unit of currency, can be traded for an agreed upon value depending on current market conditions. Occasionally it can be exchanged for a different coin or token that belongs to another blockchain, either through a cryptocurrency exchange or through private transfers (like peer-to-peer and OTC trades). For example, Bitcoin (BTC) is the most popular coin and is powered entirely by its own blockchain network. Another popular coin is Ethereum (ETH). The Ethereum blockchain can be used to execute smart contracts and build decentralized applications.

Some characteristics of a coin that can used to denote its meaning are;

  1. Operates on its blockchain: A blockchain keeps track of all transactions that involve its native crypto coin. When you pay someone with Ethereum, the receipt goes to the Ethereum blockchain. If the same person pays you back later with Bitcoin, the receipt goes to the Bitcoin blockchain. Each transaction is protected by an encryption and is accessible by any member of the network.

  2. Acts as money: Bitcoin was created for the sole purpose of replacing traditional money. The appeal of transparency and anonymity inspired the creation of other coins, including ETH, NEO, and Litecoin. You can purchase merchandise and services from many major corporations today, such as Amazon, Microsoft, and Tesla, using crypto coins.

  3. Can be mined: One way you can earn crypto coin is through traditional mining on the Proof of Work system. Bitcoin hunters employ this method to boost their earnings. The problem with this is that there aren't that many Bitcoins left to mine, so the process becomes more difficult every day.

WHAT IS A TOKEN?

While the main characteristic of a crypto coin is that it must have its own blockchain network, a crypto token is the opposite: it runs on another blockchain. For a more specific meaning, it is used to describe crypto-assets that run on top of another cryptocurrency’s blockchain. While a cryptocurrency like Bitcoin has its own dedicated blockchain, DeFi tokens like Chainlink and Aave run on top of, or leverage, an existing blockchain, most commonly Ethereum’s and some of the most commonly seen tokens on Ethereum include BAT, BNT, Tether, and various stablecoins like the USDC.

Tokens helps decentralized applications to do everything from automate interest rates to sell virtual real estate. But they can also be held or traded like any other cryptocurrency. If crypto coin transactions are handled by blockchain, then tokens rely on smart contracts. When a token is spent, it physically moves from one place to another. A great example of this is the trading of NFTs (non-fungible tokens.) They are one-of-a-kind items, so a change in ownership must be manually handled. This is different from coins because crypto coins do not move around; only account balances change.

To simply put, a token represents what you own, while a coin denotes what you're capable of owning. Everyone has used a token at least once in their life; That dinner for two vouchers you got in the mail is a token. Your car title is a token because tokens can stand for assets or deeds.

IN CONCLUSION

To summarize, all digital currencies can be called cryptocurrencies, but not all cryptocurrencies can be called coins. Tokens can be cryptocurrencies, but they can also be NFTs and other non-currency assets. As confusing as it sounds, knowing the difference between tokens and coins is an excellent way to impress the crypto experts in your life.

The difference between token and coin isn't vast, but it can cause a major headache if frequently overlooked. One quick way to decide which one you should use is to pay attention to what you're buying. If it's a product, most often, you would need coins. If it's a service, there are usually utility tokens you can use.