Cryptocurrency has grown to a global market value of USD$1,782 billion as of 2021 since its introduction in 2008. This indicates the influx of people showing interest in the industry.
However, because cryptocurrency is still new and everyone is rushing to leverage its promising benefits, people often mix up terms used to define the different digital assets. An example of this is how the terms crypto coin and tokens are used interchangeably.
At their core, both crypto coins and tokens are much alike. They’re both used to represent values and for payments. Yet these two digital assets aren’t the same. All coins are tokens, but not all tokens are coins. Their differences lie in their utility, as discussed in this article.
If you have used these terms one to mean another at some point, this article is for you. Keep reading to learn the vital differences between a crypto coin and a token.
A crypto coin is the native asset of a blockchain used as a medium of exchange. On the other hand, a token is a unit of value developed based on already existing blockchain networks.
By their definitions, you can already spot some differences between the two. For example, unlike crypto coins, tokens don’t have their blockchain network. They operate based on the blockchain network of other crypto coins, and smart contracts like ERC tokens handle their transactions.
Here are five key differences between crypto coins and tokens:
- Crypto Tokens Don’t Have A Blockchain Network
Every crypto coin has its blockchain network. Thus, transactions that used crypto coins are stored and tracked in the individual coin’s blockchain network. For example, all Ether transactions are stored in the Ethereum blockchain, and they’re only accessible to their members. Therefore, if you have Bitcoins, although it’s a crypto coin, you wouldn’t be able to access the Ethereum blockchain.
Tokens don’t have their blockchain network because they operate based on the already established blockchain of crypto coins. Most work is based on the Ethereum blockchain, including Loopring, Tether, BNT, and BAT. In particular, smart contracts are used for token transactions.
Smart contracts are programs stored on blockchains used to execute transactions automatically once they meet predetermined conditions. Hence, tokens use the smart contracts found on each blockchain to make a trade.
- Coins Represent A Medium Of Trade While Tokens Represent an Asset
Another difference between these two digital assets is what they represent. A crypto coin is used as a medium of exchange. The intention for the invention of crypto coins was that they would replace fiat currency, such as money. Although crypto coins haven’t entirely replaced fiat currency, they’re a recognized medium of exchange in many countries.
Meanwhile, tokens represent an asset. They’re used to show the value of what you as an owner hold. You can therefore stake tokens to earn interest. In summary, while a crypto coin represents what you’re capable of owning should you purchase the item, a token shows the value of what you own.
When a token is used, the change of ownership happens physically. So, the token moves from one place to another. A good example is a non-fungible token (NFT) that manually oversees a change of ownership. However, there isn’t any movement when it comes to crypto coins. That is why it’s called a digital currency. This way, all members can see the transactions done digitally and the history of ownership recorded in the blockchain.
Crypto coins are used primarily as a payment mode for goods and services. Tokens, meanwhile, have a handful of uses. Besides being used as a show of value or assets, they can also be used as vessels to represent physical items. For example, you can use a token to represent the value of a piece of art or a real estate property.
- How They’re Made
It’s easy to create tokens, unlike crypto coins. All you need is to have the technical expertise of a developer and follow a template of a given blockchain to create a new token. Crypto coins can only be created through mining, though.
Mining involves downloading software with the history of transactions in a given blockchain network. Although mining crypto coins may seem easy, the problem is that there aren’t many coins left to mine, and the number decreases every day. Thus, it’s hard to create a new crypto coin, unlike a token.
Wrapping It Up
If these two terms have been confusing you, you’ll be able to tell a crypto coin and token apart after reading this article. This will be valuable information, especially if you’re interested in investing in digital assets.