The Difference Between Coins & Tokens
by Kamil S
What is the difference between coins and tokens in crypto? No matter how frequently these terms are used – and often misused – one thing is certain: the two fundamental words are not synonyms.
What Is a Coin?
A cryptocurrency that possesses its own native blockchain network is referred to as a coin. For instance, the most widely known and used coin, Bitcoin (BTC), is wholly supported by its own blockchain network.
Similar to traditional currencies, crypto coins are primarily intended to serve as a form of value storage and a medium of exchange.
Although the underlying technologies of cryptocurrencies are typically created from scratch, the existing source codes are also used to coin new digital currencies. Litecoin (LTC) being based on the open source protocol of Bitcoin is a good example.
What Is a Token?
The main difference between tokens and coins is that a token runs on another blockchain. The most popular and used types of tokens, ERC-20 and ERC-677, operate on the Ethereum blockchain. The mother of all token standards, ERC-20 is used to create and issue smart contracts, whereas ERC-677 is an extension of ERC-20, offering useful functionality without conflicting with the primary standard. Moreover, ERC-20 is used by smart contracts for accounting.
Did you know that LINK (Chainlink) is the most popular ERC-677 token? Chainlink can connect a variety of data types with different blockchains, opening up a wide range of potential applications for this decentralized oracle.
It is interesting to know that in addition to serving as a digital representation of non-fiat assets traded on-chain, such as NFTs, tokens can also be used to exchange money. Exchange tokens function just like any other cryptocurrency token. You can trade them on secondary markets or hold them for speculative purposes.
Last but not least, tokens can be used to digitally trade real-world assets, such as stock, gold, or real estate, etc.
Coins vs. Tokens: A Comparative Overview
Here are the important points to be noted when comparing crypto coins and tokens:
- Tokens are much easier to create. Rather than writing a new code, you can utilize the one available on an open-source blockchain platform. In other words, anyone can create their own token – even if just for fun!
- As compared to coins, tokens have a different structure. Tokens are created on existing blockchains like the Ethereum blockchain, as opposed to coins, which have their own unique blockchains.
- Coins are a form of digital currency that can be used to buy or sell goods and services, whereas tokens can serve as company shares.
- Finally, tokens may provide various use-cases within the networks, depending on the project. For instance, as a form of payment within specific blockchain platforms, whereas coins operate independently.
- Unlike tokens, coins are created on independent blockchain networks.
- Unlike coins, tokens can be used to digitally represent practically any asset in the world.
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