Crypto Coins vs Tokens: Differences Explained
Crypto Coins vs Tokens: Differences Explained

By DimitarM | Welcome to my life | 21 Feb 2020


Hey guys, I decided to make such an article because I'm sure not everyone is aware of the difference and is good if everyone is well informed in order to understand the crypto. My target here is to offer a simple explanation that everyone can perceive.

In order to start let's first explain briefly what Blockchain is. It is an electronic ledger that consists of Blocks. Blocks are periods of time where transactions occur. They are recorded by the people who posses the Blockchain. When the time for a block to end, the transactions are locked in and a new block starts to build on the previous one and the others before that. The users on a specific Blockchain do not actually hold the blocks itself, they hold the KEYS that let them make entry to the Blockchain that states where their assets are located. Important to note is that in the Digital Ledger, called Blockchain, you can store ANY information, not only transactions. This is why it is very possible in future the Blockchain might have more wider application.

Anyway, lets go back to the topic of what Coin is. The coin has it's own Blockchain. And here lies the main difference. It is self sufficient and it's value comes directly from the belief of people that it holds value. If tomorrow no one in the world needs and searches this coin it cost will literally drop to 0.

To give you an example of coins I will use Coinmarketcap. From the Cryptocurrencies menu you can pick option Top 100 under coins only:

351665157-d671ce53b70226227efabc028331f90fe9f7091c3372aafb4b30a0d0d0c50d69.png

This will show you the 100 biggest crypto Coins:

351665157-e35367fc82be1a4cc9af83e74e25c5e9fa27523999223207656f6dbeb61bfdd0.png

This is example of the 5 biggest crypto Coins sorter by Market Cap, which is the value of the total amount of each specific type of Coins. Anyway, we have here, Bitcoin, XRP, Bitcoin Cash, Litecoin and so on. Each of them has it's own Blockchain. Some coins forked at some point in their existence and a new coin were born and so on. This is all unnecessary details for our topic today.

Let's look at what Token is. The token does not have it's own Blockchain, it is always built on the Blockchain on some Coin that allows it. By far the most popular platform to build tokens is the Ethereum network. However there are others - Tron, Stellar, Omni, Waves, etc. This means that all tokens operate on the specific Blockchain they run on and their transactions are recorded in the Ledger that this specific Blockchain is. Anyway, it is important to note that the fees for the transactions for the tokens on specific Blockchain are paid in the Coin that owns the Blockchain. This is why, when you have ERC-20 wallet and you have for example BAT in it and you need to send a transaction, you are required to have a small amount of ETH in the wallet in order to pay the "Gas" for the transaction. Another important property of the Token is that it can be backed by something or so called asset-backed tokens. This usually can be a FIAT currency - US Dollar, British Pound and so on. Despite the fact they are backed by a particular currency they are not centralized and not governed by any institution. 

If we open Coinmarketcap again we can find under Cryptocurrencies tab Top 100 (tokens only):

351665157-f78163a87e60b6c31dbf6d49a2d31074d2376070313aacb301ee6fd80bbbf451.png

And this will give you an idea for example for tokens:

351665157-825117cc626ea5bcf741dd35ee44e330ec5c9174afda3143ba30394b83118f9f.png

Tokens value comes not only from it's existence, but also from it's purpose. We discussed already the tokens that are tied to currencies, but other tokens have different purposes - for example a token can be used for tipping authors on a Website (BAT) or in a specific Exchange to guarantee specific "status" that grants privileges to it's owner when trading on this Exchange. There are countless examples that can be provided, but I'm sure guys, by now you get the idea.

 

Let's recap -> 

Coins have own Blockchain and their value comes from the users belief in the coin.

The Token on other hand does not hold it's own Blockchain and run's on Blockchain (owned by a Coin) that is not controlled by them. Their value is also fueled by the purpose that stands behind the creation of the Token.

I really hope guys, this was useful for someone.


DimitarM
DimitarM

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