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When it comes to blockchain technology, the terms ‘coins’ and ‘tokens’ are often used interchangeably. But are tokens and coins the same thing? The answer is no! They are the same to those who are not conversant with the crypto world and its terms. However, there are differences between the two types of digital assets.
What Are Crypto Coins?
Crypto coins are digital assets that represent a specific value. Coins typically exist as a standalone currency on their blockchain. They use blockchain technology to keep track of the coin's ownership and movements. They are typically decentralized. They use cryptography to secure and verify their transactions, allowing them to be transferred securely without the need for third-party validation and central control.
You can use coins to pay for goods and services, store value, or facilitate transactions between two parties. Additionally, they provide more privacy than other payment methods, such as credit cards or bank transfers. A clear example is Ether, the native coin of the second largest cryptocurrency based on market cap. ETH runs on its independent blockchain—the Ethereum network—and is used for various transactions on the network.
Popular Examples of Coins
Each coin has its unique features and purpose.
- BTC
- ETH
- BNB
- XRP
- ADA
- DOGE
- SOL
- DOT
- TRX
- AVAX
What Are Tokens?
Tokens are built on existing blockchain networks and offer advantages of utility, liquidity, and cost-effectiveness. They can be used as a unit of value, like a currency, or represent something else, such as ownership rights or access to specific services. Tokens are also used to facilitate fundraising campaigns, such as initial coin offerings (ICOs). In these cases, tokens are typically sold to investors in exchange for cryptocurrency, which is then used to fund the project.
Many tokens are often issued on the Ethereum blockchain and represent a wide variety of digital assets, including cryptocurrencies, in-game items, collectibles, and even real estate. Some of these tokens fall under Ethereum’s ERC-20, TRON’s TRC-20, or even Binance Smart Chain’s BEP-20 token standards. Tokens can be used for various reasons, such as trading, staking, and participating in decentralized applications. They can also be used to reward participants in a network or platform.
Popular Examples of Tokens
- USDT
- USDC
- BUSD
- MATIC
- DAI
- SHIB
- UNI
- LEO
- LINK
- APE
Types of Crypto Tokens
There are various main types of crypto tokens:
1. Utility tokens: These tokens provide access to a product or service and give users the right to interact with a particular network or protocol.
2. Security tokens. They represent an investment contract and are subject to federal securities regulations. These tokens derive their value from an external, tradable asset.
3. Asset-backed tokens: These are tokens whose underlying values are backed by real-world assets like gold, oil, or stocks.
4. Governance tokens: Community members can directly affect a project's development using governance tokens. Holders of governance tokens receive voting rights in DeFi protocols or DAO projects.
5. NFTs: An abbreviation for non-fungible tokens. It is a digital proof of ownership for a special item that cannot be replaced or exchanged for another on the blockchain. It might stand in for anything, including works of art, photographs, videos, GIFs, collectibles, virtual worlds, cards, LANDs, and other valuable digital items.
Distinctive Differences Between Coins and Tokens
When it comes to coins vs. tokens, there are differences worth mentioning.
Blockchain
Coins are built on their blockchain, whereas tokens are built on an existing blockchain, most notably the Ethereum network. Each blockchain has only one coin. However, several tokens can exist on the same blockchain.
Use cases
Though their uses overlap, they still have use cases distinct from them. Coins, such as Bitcoin and Ethereum, are typically used for payments and stores of value. On the other hand, Tokens have a wider range of applications, like representing an asset or utility on a blockchain. They are also used for crowdfunding, loyalty programs, and decentralized governance.
Trust
When it comes to trust, both coins and tokens depend on the underlying blockchain technology and smart contracts. Still, coins also rely on the reputation of the network itself. This is because coins tend to have more trust due to their established track record. On the other hand, tokens may have less trust since they do not run on their own and, in some cases, are more liable to crypto scams such as rug pull or pump-and-dump schemes.
Distribution
Crypto coins are mined through the proof-of-work (PoW) protocol or acquired through the proof-of-stake (PoS) mechanism. Project developers create and distribute tokens through ICOs or token airdrops.
Conclusion
The article already outlined the differences between coins and tokens. You must keep it in mind, especially if you want to explore the crypto world and diversify your portfolio. The simplest way to remember is that coins are cryptocurrencies built on their blockchain, while tokens are built on top of an existing blockchain. They both have their use cases and their distinct benefits.
When deciding which to transact, it’s important to consider factors such as the project’s development team, roadmap, market potential, and potential risks associated with the project.
About the author
Victoria Onyemachi is a web3 writer working at the Guarda Wallet team.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.