What’s the Difference Between Tokens & Coins?

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2 min read

What’s the Difference Between Tokens & Coins?

As you read more about digital currencies, it feels like the words “coin” and “token” are synonymous. This, however, is incorrect. Although coin and token are often used interchangeably in the crypto universe, it is important to understand the distinction of the different roles they play when it comes to blockchain projects. This knowledge can be invaluable when making investment decisions.

WHAT ARE COINS?

The term coin generally refers to any cryptocurrency that exists on its own separate, standalone blockchain. A few of the most popular are Bitcoin, Monero, and Litecoin. The crucial properties of a coin are — uniformity, portability, fungibility, acceptability, durability, divisibility and limited supply.

WHAT ARE TOKENS?

The term token or digital tokens can refer to any cryptocurrency that is built on top of an existing blockchain (think of a Dave & Busters arcade token that you can’t touch or hold in your hands).

Generally, coins represent a cryptocurrency that is similar to the foundation or framework of a building. In contrast, tokens represent a cryptocurrency that is added to an existing infrastructure, like a new roof on a house. The process of building an entirely new blockchain and launching a coin is typically considered to be more complex and time-consuming.

COMPARING TOKENS AND COINS

There are several fundamental differences between tokens and coins that you should know:

- Coins can exist independently (Ethereum), but tokens can’t do that without ‘parent’ infrastructure
- Token price depends from project-oriented factors, coins – from its value to the market
- Coins tend to have a much larger user base than tokens.
- A coin functions like money, while a token is more similar in functionality to a gift card.

Countries like Japan, Canada, and the US are working on formulating regulations around different types of cryptocurrencies which should make the picture clearer for everyone to differentiate between various crypto projects.

CONCLUSION

The language used in cryptocurrency is important to understand to better guide your investment decisions. We encourage you to explore learning resources, like our GetSmart Hub, to fully understand this language, especially with regards to words that seem so similar on the surface like token or coin. With a deeper understanding of what makes these terms distinct, you can feel confident and make more informed investment decisions.

3 min read

What’s the Difference Between Tokens & Coins?

People interested in the cryptocurrency industry should be aware of the terminology used in this environment in order to make informed investment decisions. [There are a variety of acceptable terms for cryptocurrency that people interested in the industry should know in order to make informed investment decisions.] Sometimes it can be challenging to distinguish between terms, especially when they are often incorrectly used interchangeably. In this article, we will look at the difference between coin and token.

WHAT ARE COINS?

Let’s start off with coins. This is perhaps the most liberally used word in the world of digital currencies. Coin refers to a form of currency that’s held digitally. This digital money is kept secure using encryption, which is the process of converting meaningful information into a secret code. Bitcoin is the most famous example of a coin. It has the same characteristics as money: easily exchangeable, divisible, secure against counterfeit, and has a limited supply. These characteristics allow for Bitcoin, or any altcoin, to inherently have value and act as a medium of exchange.It is important to note that coins do not perform any function besides acting as money. They are sent, received, mined, and held on a public blockchain. Basically, coins cannot function specifically, but only as a general measure of value. Similar to how dollars can be exchanged for nearly any good or service available, coins can be exchanged for specific items, but the possibilities are general, not specific.

WHAT ARE TOKENS?

If the best analogy for a coin is a dollar bill, then a good analogy for a token would be a gift card. A token represents a specific asset and is only functional on a unique network. Therefore, tokens can only be used in certain cases as the value they hold is directly linked to the particular blockchain-based project that issued the token. Whereas coins act as digital money, tokens act as digital assets issued by a private company.

There are two types of tokens: utility tokens and security tokens. Utility tokens are redeemable for some sort of reward in the future, like a pre-order, whereas security tokens are issued as equity for a particular project. The purpose of offering these tokens can range from raising investment capital to rewarding users for completing certain tasks. All in all, it’s important to note that tokens can hold value, but of a very specific type as compared to coins, which are generally more valuable.

It is necessary to note that all coins or tokens are viewed as cryptocurrencies, even if most of the coins don’t operate as a currency or medium of exchange. The term cryptocurrency is a misnomer since a currency technically represents a unit of account, a store of value and a medium of exchange. All these characteristics are inherent within Bitcoin, and since Bitcoin’s creation kickstarted the cryptocurrency industry, any other coins conceived after Bitcoin are frequently referred to as a cryptocurrency.

COIN VS. TOKEN: WHICH IS BETTER TO CREATE?

Deciding on which type of cryptocurrency is better to create is really up to each project team. Coding a new blockchain has become much simpler with the availability of open-source code, however, due to the high level of technicality, it still requires a lot of time and effort. Ultimately, the most significant benefit to designing a new coin (and a new blockchain) vs a new token (using an existing blockchain) is that there might be less reliance upon other teams to make regular technical improvements.

Digital tokens and coins are both essential to the cryptocurrency market. While there is only one fundamental difference between these two cryptocurrency categories, knowing the difference between coins and tokens is critical to understanding how these investment properties function. Moreover, having this technical knowledge can also help you to better evaluate both ICOs and existing cryptocurrencies.

4 min read

What’s the Difference Between Tokens & Coins?

First and foremost, here is a quick explanation of the difference between coins and tokens, in case you need a refresher. The definition of a digital coin is an asset that is native to its own blockchain. Think about Bitcoin, Litecoin, or Ethereum, each of these coins exist on their own blockchain. Tokens are created on existing blockchains. In fact, as a result of the creation and facilitation of smart contracts, the most common blockchain token platform is Ethereum. Tokens that are built on the Ethereum platform are known as ERC-20 tokens. However, there are others, such as NEO, which uses NEP-5 tokens, Waves, Lisk, Stratis and more.

TOKEN VS. COIN: THEIR PURPOSE

Most tokens exist for the purpose of being used with decentralized applications, or dApps. When developers are creating their token, they can decide how many units they want to make and where these new tokens will be sent when they are created. They will pay some of the native cryptocurrency on the blockchain they are creating the token on at this point. Once created, tokens are often used to activate features of the application they were designed for like Gnosis, a prediction market platform built on the Ethereum blockchain. The project aims to allow people to make accurate predictions about real-world events like elections, market prices, etc. Users of the platform are rewarded for making accurate predictions by Gnosis in the form of GNO token or other cryptocurrencies as per the project’s preset rules.

HARD FORK OR CREATE A NEW BLOCKCHAIN?

The reality is that not all project teams or open-source communities are 100% in agreement on all issues. Frequently, we see disputes over which direction a blockchain, and its coin, should go. For example, Bitcoin Cash and Bitcoin Gold emerged as hard forks of the original coin, Bitcoin. In many cases, these hard forks create viable alternatives to existing blockchain projects. While hard forks do add a competitive element to the cryptocurrency market, it is possible for multiple cryptocurrencies originating from the same blockchain to exist in harmony. It’s worth noting that cryptocurrencies that arise from hard forks are coins, not tokens.

COIN SWAPS: MOVING FROM TOKEN TO COIN

While many hard fork coins are ranked high in terms of market cap, these projects do not represent a majority of cryptocurrencies. Most cryptocurrency projects on the market in 2018 actually start out by launching a digital token rather than a coin. There are several reasons why project teams do this. Many blockchain projects issue tokens during their ICOs with the intention of creating their own blockchain in the future. The process of raising money during an ICO doesn’t require a new project to already have an existing, standalone blockchain. For project teams, it’s easier to raise funds and distribute tokens via an existing blockchain. This reduces potential technical issues and streamlines the entire ICO investment process. Typically, project teams launch testnets of their own blockchains before releasing a publicly available cryptocurrency mainnet. Once a project team is ready to launch its mainnet, it usually conducts a coin swap. This is also known as a token swap. During this event, users are able to exchange their digital tokens for digital coins that can be used on the new, standalone blockchain. In 2018, EOS, Tron, VeChain Thor, and several other projects completed this process.

For investors, it’s necessary to remember that coin swaps can be done manually or automatically. Many exchanges like Binance, for example, have a feature that automatically swaps digital tokens for coins. Investors who store funds in an external wallet will have to go through a few manual steps before receiving new coins.

WHERE TO GET STARTED?

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