Difference between Coins & Tokens

Difference between Coins & Tokens

By Chriss | Bitcoin Meister | 20 Jun 2021


Hello everyone! 

Many of you often wonder why we differentiate between Coins and Tokens, some of you even confuse the two denominations, calling 'Tokens' those which are 'Coins' and calling 'Coins' those which are actually 'Tokens'. But both are Cryptocurrencies/Crypto Assets.

 

Let's first recall what a Cryptocurrency is: Electronic/Virtual Currency built with Strong Cryptography. It is highly Secure and Immutable. And are based on Blockchain Technology.

One of the first Electronic Currencies that inspired our current Cryptocurrencies, was created by David Chaum in 1989, under the name DigiCash 

 

To understand this big difference between Coins & Tokens, just remember this:

  • A COIN is a Cryptocurrency that operates and functions on a Blockchain of its own and thus each Blockchain is different!

Like for example: 

  • Bitcoin (BTC) operates and functions on the Bitcoin Blockchain
  • Ether (ETH) operates and functions on the Ethereum Blockchain
  • Dogecoin (DOGE) operates and functions on the Dogecoin Blockchain
  • Polkadot (DOT) operates and functions on the Polkadot Blockchain
  • NEO (NEO) operates and functions on the NEO Blockchain
  • TRON (TRX) operates and functions on the TRON Blockchain
  • Note Blockchain (NBTC) operates and functions on the NOTE Blockchain

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The second big difference is that the Coins are mostly Minable. Because Blockchains need Miners to maintain the Blockchain, secure it and validate transactions.

 

So on the contrary, Tokens work on a Blockchain that allows to create and Host them (while they belong to another Coin), such as: 

  • the Ethereum Blockchain, with Tokens of type ERC-20 & Tokens of type ERC-721
  • the NEO Blockchain, with Tokens of Type NEO-5
  • the Tron blockchain, with Tokens of Type TRC-10

You can also create tokens on a multitude of other Blockchains such as: 

  • Stellar
  • QTUM
  • Waves 
  • Ethereum Classic
  • CounterParty
  • EOS
  • Minter Network
  • OMNI
  • NEM …

 

Concerning the Coins, you have to think of them as a 'Currency' in their own right. Because they have the same characteristics as the Money Coins:

  • Exchange intermediary/Money transfer (allows to buy online, or in store ..)
  • Reserve of value (can be stored to be sold later, hoping to make a profit)
  • Unit of account (allows to set a value with this currency)

"A currency is characterized by the confidence its users have, in its ability to serve as a medium of exchange."

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Let's cite these examples: 

  • Bitcoin (BTC), Pays transaction fees, rewards miners of the Bitcoin Blockchain
  • Ether (ETH), Serves as fuel/gas for the platform, allows for the execution of Smart Contracts, transaction fees, as well as all Tokens created on the Ethereum Blockchain (Type ERC-20 & ERC-721) need ETH to be initiated, and pay for transaction fees as well as sending Tokens.
  • Ripple (XRP), Pays Network Fees

 

Unlike TOKENS, which can eventually serve as a Unit of Account and "theoretically" a Reserve of Value, but do not include any of the other fundamental characteristics of the Currency.

The advantage of creating a Token, is to create a Cryptocurrency, without having to create a Blockchain (as well as a Coin), by using pre-established Scripts (ERC-20, NEO-5, TRC-10 ...). So saving time and money

Generally issued during ICO/STO, there are various types of Tokens:

  • Security Tokens
  • Equity Tokens
  • Utility tokens
  • Payment Tokens.

Depending on the type of Token, you can enjoy premium or advanced options on dApps, you can own some shares of a Token issuing company (Security Tokens), or you can use a service, once it is developed after the ICO.

Some examples of Tokens are:



Conclusion

Coins, like Tokens, are Cryptocurrencies, they are : Fungible, Divisible, Portable and have a Limited Offer (for a very large majority of them)

  • Coins are Native Units of a Blockchain, whose existence is essential to the survival of the Network.

 

  • Tokens are non-Native Units of a Blockchain, which it (Blockchain) does not depend on it (Token) to function. Because they are created through an existing Blockchain, depending on a Coin. 

 

Some Blockchains need the Native Coin to create, and perform Token Transactions

  • Ethereum Blockchain - ETH
  • NEO Blockchain - Gas
  • Minter Network Blockchain - BIP ...

 

Remember also that a Cryptocurrency can appear as a Token first, and then migrate to its own Blockchain and become a Coin, such as Rapids Network and its Cryptocurrency Rapids (RPD)

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See you soon

Christophe WILHELM

Bitcoin Meister

© Bitcoin Meister

 

Source pics: Google

 

 

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Chriss
Chriss

Writer - Freelance


Bitcoin Meister
Bitcoin Meister

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