If you have an interest in cryptocurrency and blockchain, if you want to invest in the cryptocurrencies or blockchain companies, one of the key concepts you need to understand is the difference between tokens and crypto coins. In this article, I will share token vs coin comparison in detail to make it as easy for our readers to understand both concepts.
There is also a reason why token vs coin comparison is necessary. This is because, I have noticed some people use both terms interchangeably, which can create serious confusion if you are looking to invest in cryptocurrency or blockchain because there is some difference between both. You can’t use terms like token or crypto coin for the same concept.
Token Vs Coin: Why There is a Confusion?
Some people are confused about both terms because they both describe units of the blockchain, but there is also a difference that makes both a separate entity.
If we look into detail – token and coins – both are part of the ecosystem that was created by cryptocurrencies, and subsequently blockchain. Today, there are more than 1,300 cryptocurrencies, all working on blockchain technology, with token and coin as basic units of cryptocurrency or blockchain technology.
Let’s start our token vs coin comparison with basic definitions first.
A coin is also known as crypto coin, or altcoin or bitcoin. It is a basic unit of cryptocurrency, an independent digital currency that operates without any dependence on a platform. They have their own platform as blockchain. When we talk about bitcoin or altcoin, we are actually talking about a coin.
We have different coins nowadays, like altcoin which is an alternative to bitcoin. So how does a coin differs from another coin? All coins other than bitcoin, which are known as altcoin, are bitcoin variants. They are formed by changes made to Bitcoin’s open-sourced code. This creates a new coin that is based on different features.
Here is a more technical definition of a coin:
“A Coin, or a digital coin, is a digital asset that is native to its own blockchain.”
What does it mean? That a coin exists only on their own blockchain. Bitcoin can’t operate on Ethereum blockchain and Ether can’t work on Bitcoin blockchain.
Some examples of altcoins or coins are Auroracoin, Litecoin, Dogecoin, Peercoin, and Namecoin. In addition, there are also other altcoins that are not based on bitcoin’s blockchain but have their own protocol and blockchain.
These are Counterparty, Waves, Nxt, Omni, Ripple, and Ethereum, which is the second best-performing coin after bitcoin.
Tokens are different than coins. They require a platform to be built and operate, that is an existing blockchain like NEO or Ethereum (most common). Tokens are essential to fund the operating expenses for a service or a blockchain based company, like DAOs. Not only that, but tokens also provide a way to define protocols, or help the blockchain based company to make decisions.
Most tokens are based on Ethereum and NEO blockchain platforms, while other less popular platforms are Waves, Lisk, and Straits.
There are also different names for tokens based on different platforms. For example, ERC-20 tokens use Ethereum platforms while NEP-5 tokens use NEO platform.
Token vs Coin: The Use
Another significant difference between the coin and token is, the use of tokens is diverse compared to coins. Coins are an alternative to traditional currency, or you can say they are a digital variant of conventional currency.
For example, you can use coins to pay for online services, products, and goods, or you can save it as an investment. Pretty much same application as traditional currency.
However, the application of tokens is diverse.
Tokens can satisfy one or more than one of the following conditions.
- It can be a digital currency
- It can be a digital asset
- Token can be a mean of accounting, like number of API-calls.
- A share in start-ups (especially in the case of DAOs)
- A mode of payment
Next, what is the purpose of tokens?
Tokens were created on the blockchain platforms to be used with decentralized applications, more commonly known as dApps. Any developer who knows the basics of blockchain technology can create tokens by paying the cryptocurrency as a fee.
Once the tokens are created, they become a source of investment and to set protocols for that application or organization. It all depends on the developer and what he wants to achieve with the tokens, or if the token is for dApps or DAOs.
For example, a dApp token is Musicoin. A user can use the token to access features of the music platform, like streaming a song or watching a video.
Similarly, tokens can also be used to represent a physical entity in smart contracts. One such example of a dApp that represents a physical entity is WePower. What does this dApp do? It allows users to buy and sell electricity, where tokens represent the amount of energy.
Understanding Different Types of Tokens
Let’s understand the token vs coin comparisons deeper by looking into different types of tokens, especially equity tokens, security tokens, payment tokens, and utility tokens.
Security tokens are issued by ICO, which are a form of an investment in the ICO. You can compare them with traditional securities as they serve the same purpose.
Equity tokens represent an equity or a stock in the company. These are more applicable to DOAs.
Utility Tokens, often known as application tokens, provide users access to different services or product mostly for dApps.
Payment Tokens work like coins and used to pay for services of products.
Token vs Coin: Comparison Table
Here is a quick summary of the difference between both.
|Tokens are made on top of a particular blockchain||Coins are natives to their blockchain|
|The use of tokens is diverse, as they work for a different purpose for dApps (access to services), and different for DAOs (to vote).||The use of coins is mostly in the form of digital currencies|
|Example: Security tokens, utility tokens, equity tokens, Musicoin, BNB, etc.||Example: Bitcoin, Litecoin, Ripple, ETH, NEO, etc.|
Token vs Coin: Final Words
I hope that you now have a clear understanding of both concepts. Tokens and coins can be same only in the case when we are talking about payment tokens, but tokens are much more than that.
Tokens have much larger applications and diversity of use compared to coins, which are only a digital alternative to traditional currency. When coins are native to their blockchain, tokens are created on top of another blockchain by paying a fee in the form of the coins native to that blockchain.