Are crypto tokens and coins the same thing? Not exactly. Here we explain their differences and uses, with insight into popular ones. What Is a Crypto Coin? Coins are the digital equivalent of money that operate on the basis of a separate and independent blockchain. The most famous example of coin is Bitcoin. It is based on blockchain — a digital database or ledger that is distributed among the nodes of a peer-to-peer network. All the data is stored collectively and shared between participants of the blockchain network. Coins have the same characteristics as money: they are interchangeable, transportable, durable, and have limited supply. All who use cryptocurrency are sure that crypto coins will replace conventional money in the near future. The main characteristics of coins:
A crypto coin is a form of digital currency that’s often native to its blockchain; it stores value and acts as a medium of exchange.
Coins can be mined through Proof-of-Work (PoW) or earned through Proof-of-Stake (PoS).
What Is a Crypto Token? Tokens are digital assets, which are created on the basis of an existing blockchain or platform. They are used for different purposes. According to their purpose, tokens can be divided into several types:
This category of tokens represents assets such as participation in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments.
Users can use them to pay fees, buy and sell other cryptocurrencies or power operations.
They are part of an independent financial ecosystem where users can interact without the involvement of a third party.
Token holders have the right to participate in making decisions about the life of the project.
They are a source of capital for startup companies.
Their aim is to decentralize our internet infrastructure so that it is owned by the people and bring a fairer internet standard to everyone.
They refer to an asset integrated with a blockchain that allows users to purchase a good or service in the future.
They are digital certificates of ownership to a unique asset on the blockchain.
People name them a “digital dollar”.
Assets that are used for privacy apps because their code encourages better privacy than any crypto. Token may perform the functions of a digital asset, represent a company’s share, give access to the project’s functional and many more — with the launching of new projects unknown facets of tokens’ functional are discovered. Simply put, although a cryptocurrency token can act as a form of payment, its primary purpose is to be used within a blockchain platform’s wider ecosystem.
Creating a token is easier than creating a coin, as you use an existing blockchain for it. Using a template for creating tokens provides smooth interoperability, so users can store different types of tokens in one wallet.
The main characteristics of tokens:
A crypto token is usually built for a decentralized project on an existing blockchain (like Ethereum, the most popular blockchain for dApps).
Tokens represent assets or offer holders certain platform-specific features.
Tokens offer such functions, as utility, security, and governance.
Crypto Tokens vs Coins: What Are the Main Differences?
Crypto coins and tokens have a variety of use-cases and there is, of course, some crossover, with both coins and tokens having their uses as an exchange of value. This means that when analyzing them, you’ll often look at similar metrics; their use, active holders, value, allocation, market capitalization, and so on. But that’s largely where the similarities end. See, coins are integral to the security of a blockchain and incentivize participants' good behavior. They tend to be less volatile than tokens, and also less frivolous—but that’s not always the case. If you’re analyzing coins, it’s always clever to look at the technical side of how the network operates, such as its consensus mechanism. This gives you an insight into where that native coin is going, and whether the participant responsible for processing transactions is doing so effectively. Tokens, on the other hand, provide purpose and utility to the network’s users, promoting the network’s growth in relevance and users. While that may sound trivial compared to security, each of these assets plays a valuable role. Tokens are much quicker and easier to launch than coins. This means they are more than sufficient for temporary or singular use cases. But don’t underestimate them for being easy to launch. Believe it or not, some tokens on the Ethereum chain have grown so far that they outweigh many coins with their own entire networks. ERC-20 token DAI is a great example of this. Even as an Ethereum token, DAI has far surpassed the Avalanche Network in terms of market cap. But of course, you can’t have tokens without coins. These two assets work in tandem to create a better decentralized experience for everyone. For decentralized peer-to-peer transfer of digital assets, you will need to rely on the native coin of a blockchain network. Then to benefit from interoperability, you’ll need to use tokens. Put simply, the question of coins or tokens depends very much on the specific use-case and the blockchain you want to use. Examples of Crypto Coins Let’s start with the most popular crypto coin as of yet, Bitcoin. This coin exists as a censorship-resistant store of value and medium of exchange that has a secure, fixed monetary policy. The native token of Bitcoin, BTC, is the most liquid cryptocurrency in the market. It has both the highest market cap and realized market cap in the cryptocurrency sector. Bitcoin is used as a store of monetary value often dubbed “digital gold”, since it is secure and extremely decentralized. However, other coins have been created for different reasons. All non-Bitcoin coins are named “altcoins” but don’t let that fool you: They don’t all serve the same purpose. So how do crypto coins work in practice? Well, Ripple (XRP) coin was created specifically to aid the traditional banking system and therefore follows a more centralized model than Bitcoin. Then you have stablecoins, offering a way to transfer the value of a fiat currency using the security of a blockchain. A good example of a stablecoin is USDT, a cryptocurrency version of the United States Dollar (USD). But it’s not all about serious financial instruments. You also have more frivolous coins, such as memecoins, a good example of a memecoin is Dogecoin. In this case, the coin’s only purpose is to represent a meme or piece of popular culture. In short, not all coins are secure, not all coins are decentralized and, in fact, some coins don’t have a solid purpose at all. The only feature that links them is being a native coin of a blockchain network, but more often than not, they serve a purpose as some kind of currency. Examples of Crypto Tokens Crypto tokens come in various shapes and sizes, each tailored to serve unique purposes within the blockchain ecosystem. For instance, the Cronos (CRO) token operates within the Crypto.com network and offers users a range of utilities, from trading discounts to staking rewards. Very, Very Simple Finance (VVS) is another token designed to facilitate decentralized finance (DeFi) operations, providing liquidity providers and users with governance rights in the VVS ecosystem. On the Ethereum blockchain UNI tokens grant access to voting and governance decisions within the popular decentralized exchange. These examples showcase the versatility of crypto tokens, as they enable functionalities beyond mere monetary exchange, including governance, access to services, and ecosystem participation. Crypto Coins and Tokens Vs Traditional Finance While cryptocurrencies may seem overwhelming at first, it’s undeniable that blockchain technology is making the whole concept of “being your own bank” completely possible. With the innovation of tokens, cryptocurrencies are not just useful as a store or transfer of value, but also as financial instruments such as derivatives and representations of tangible assets too. The difference between these assets in traditional finance and DeFi is ownership. While your bank doesn’t give you true ownership of any of the assets you store in your bank account, your crypto wallet is built a little differently. Using a non-custodial wallet, you retain the ownership of the assets in your account. That means that whether you want to lend your crypto tokens or use them as collateral to borrow funds yourself, or even create a decentralized blockchain game, only you have custody of your assets. This is clearly much more favorable than forfeiting your ownership to a centralized company. Imagine the centralized company (or bank) you trusted with your funds closes down; in this instance, your funds might be at risk. If you want to start lending, borrowing, and more, then why trust a service that retains custody over your assets? Using blockchain technology, as long as you have a non-custodial wallet, saves you this worry. Conclusion Coins can be used only as a method of payment while tokens may present a company’s share, give access to product or service and perform many other functions. Coins can perform the function of currencies for buying and selling things. You can buy a token with a coin, but not vice versa. Coin operates independently, while token has a specific use in the project’s ecosystem.