Crypto coins and tokens are digital assets that have few similarities and many differences. A token constitutes what you owns while a coin signifies what you are capable of owning. Let's get deeper into these two interesting crypto concepts.
You might have heard of these trending terminologies recently, "Crypto coin" and "Token". But, do you actually know the difference between these two cryptocurrency concepts. Let's have a look at Crypto Coin vs. Token - Differences.
If you understand the concept of cash, then consider you already know the majority of how cryptocurrencies work.
To start with, cryptocurrencies are also known as digital cash or digital currency that works on the underlying blockchain technology. These currencies are not tangible which means they cannot be touched or felt but you can exchange them for any tangible articles.
For example, you can exchange Bitcoin (a popular cryptocurrency) for a pair of jeans, a t-shirt, or any other item that you want. The underlying technology of blockchain makes it completely secure and protects the cryptocurrencies from being misused or stolen.
In simple terms, the Blockchain is an online database that is responsible for storing each and every transaction ever conducted on it. Some of the primary characteristics of the blockchain are immutable nature, tamper-proof, and decentralized.
This means the whole network is not owned or controlled by a significant person or organization. Rather, it is spread across the entire globe by computers (nodes) and connected via the internet.
Now that you know the basics of cryptocurrencies and blockchain, let’s discover the difference between a Crypto Coin and Crypto Token.
Before we understand the difference between the two, let us first try to understand an example.
Imagine, you want to live in a house. Now in order to do so there are two options. One is to acquire a house and then live in it. The second option is to not spend a huge sum of money on buying a house, but rather rent it and live in it.
Either way, you will ultimately live in a house but if you buy the house, you can implement changes to it and upgrade it in the future. On the other hand, if you live in a rented house, you can enjoy all the basic amenities but have to abide by the rules of the house owner.
Now let us try to inculcate this example with the difference between a Coin and a Token.
To understand a crypto coin let’s go back to our example of the house. The first option to live in a house was to purchase and possess a house. A cryptocurrency coin is similar to owning a house as it operates independently and owns the blockchain network it works on.
A coin does not rely on other platforms to function. Instead, it uses its own blockchain protocol which can be further lent out to other tokens. Some of the examples of Coins are Bitcoin, Bitcoin Cash, Litecoin, Ethereum, etc.
Most Coins are typically used as a store of value or a medium of exchange. This means you can exchange these coins in return for any other utility item that you require. Although there are some exceptions to it. Ethereum is a coin that was the first to introduce smart contracts. The primary use of smart contracts is to enable developers to create Decentralized Applications (DApps) on top of the Ethereum blockchain.
Usually, a DApp has its own token which is used to provide numerous benefits within the application.
Crypto tokens, on the other hand, do not function on their own platform. Instead, they rely on another blockchain platform to exist and operate. Tokens can be referred to as renting a house where you do not own the underlying network (house) but function smoothly with the help of the underlying platform.
Some examples of a token are Litecoin, Dogecoin, Binance Coin, BAT, etc. These tokens require a platform to function. Ethereum is one of the most common platforms that is used by tokens to function.
Tokens can be of numerous types. Some of them are Platform Tokens, Security Tokens, Transnational Tokens, Governance Token, and Utility Token.
Therefore, Coins can be termed as individual stand-alone cryptocurrencies that have their own blockchain to work on. Whereas, a token is separate from a coin as it is integrated on a separate platform or coin-like Ethereum to function.
Token developers use other coins as the platform on which they build their tokens. This allows them to focus on their product and not worry about the stability and security of the underlying blockchain.
Tokens can also be migrated to a coin if the developers feel the need to do so. An example of this was ‘Crypto.com’. Earlier they used to have a token, but looking at the popularity, the developers of the project decided to build their own blockchain and then migrate to it.
To sum it all up, the easiest way to distinguish a coin from a token is to find out whether it has its native blockchain network or not. If the cryptocurrency has its own personal blockchain network, then it is a 'Cryptocurrency Coin'. And if it doesn’t, then it is a 'Cryptocurrency Token'.