Introduction
There was a time when Bitcoin (BTC) was the only cryptocurrency, and there was no other cryptocurrency to distinguish the asset. Then in 2015, the digital tokens were introduced. Tokens are part of pre-existing blockchains, while “coins” are built on their native blockchains.
There lies a pedantic difference between the cryptocurrencies - Crypto Coins and Crypto Tokens. Herein, we will read about the description of these topics. First, to know about the difference between Crypto Coins and Crypto Tokens, let us understand what cryptocurrencies are.
What is cryptocurrency?
Cryptocurrency is a decentralized digital money or currency that is secured by a system of cryptography and is based on blockchain technology.
Centralized money
It is a kind of money or currency that is governed by the central authorities or the Reserve Bank of India (RBI).
Decentralized money
The currency is governed by no similar authority. There is no particular authority that is responsible for the rise and fall of this decentralized currency. There is no single governing entity. The information concerning the decentralized currency or money is the same and cannot be altered for anyone.
What is a crypto coin?
Crypto coins are endemic to their blockchain. For example, The Bitcoin blockchain coin is called BTC and the Ethereum blockchain coin is called ETH. And the Litecoin blockchain coin is known to be LTC. Crypto coins act as a medium to exchange values, a function that is similar to traditional currencies. It is why crypto coins are also known as cryptocurrencies.
What are crypto coins used for?
When Bitcoin was introduced, it had the motive to replace the traditional fiat currencies. It worked in the same way as that of paper money and metal coins. This means that crypto coins can be used to exchange things such as that of the use of US Dollars, Euros, and Indian currencies. Crypto Coins help in the following-
Store the value of the fiat money or currency
Can be used in the exchanging of other currencies
Can be used for paying for goods and services
Transferring to others
Apart from this traditional use of crypto coins, there is an advantage of using smart contract technology, offering additional features. For instance, DASH is an altcoin that functions as a cryptocurrency and also serves a role in governance by allowing holders to participate in voting within a decentralized autonomous organization (DAO—a blockchain-based system designed to decentralize decision-making, management, and ownership).
What is a token in cryptocurrency?
Crypto tokens are designed using blockchain technology but irrespective of crypto coins, the crypto tokens are not native to a blockchain. Instead, they are built on top of it, fulfilling a variety of purposes.
Crypto Tokens represent the share of ownership in the organization called DAO, NFT, or any Physical Object. Crypto Tokens are bought, sold, and traded like Crypto Coins but they are not used as a medium of exchange.
The Crypto Tokens act like vouchers and coupons, while Crypto Coins are real dollars or cents-like currencies.
What are crypto tokens used for?
Most crypto tokens are designed in such a way that they can be used in decentralized apps. Crypto Tokens are created and developed by project developers and can be used in countless ways once come into the hands of the purchaser.
Coins vs Tokens: Key Differences
The key difference between crypto coin and crypto token lies in the structure and purpose of both these cryptocurrencies.
Coins are operated on their blockchain and act as a medium of exchange.
They are digital forms for the exchange of values and can be used per transaction within their respective blockchain network.
The crypto tokens are operated on the existing blockchain network. Crypto tokens offer a broader range of functionalities.
Crypto tokens are easier to create than the crypto coins.
For the use of coins, you need to build the whole blockchain system. This further requires time and expertise.
While tokens can be created on an existing blockchain. This further makes them simple and accessible.
Conclusion
Crypto coins are always native to their blockchains while crypto tokens are not. One blockchain can have many tokens. For example, Ethereum, the blockchain network has a plethora of ERC-20 tokens and ERC-721 tokens.
Both are cryptocurrencies and both are part of the blockchain network. But, knowing the difference between crypto tokens and crypto coins is important to invest and use. Depending on what they want to achieve in the market of the crypto ecosystem, a person can decide whether to use crypto coin or crypto token.
Overall, all the cryptocurrencies look the same but underneath they have minute differences. This is further important for an investor to know about in-depth.
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