Coins vs Tokens: What is the difference?

Cryptocurrency is a relatively new concept of currency that has also provided an excellent opportunity to trade and invest. It is a digital currency that was created by a group of anonymous people, and since then, it has made its way into the mainstream global economic structure. Cryptocurrency comes with its own set of terms that may be confusing for a layman. This digital currency has brought a new level of convenience in everyone’s lives, be it a professional sector, or an independent investor.

Being a relatively new concept, people find it difficult to grasp the ideology standing behind cryptocurrency. However, if you want to get in on this form of digital currency and plan on availing of its perks, you need to get familiar with some terms first. For instance, it is very common for people to find themselves mixing up coins and tokens. This article focuses on these two terms, what they mean and how they are different from one another.

What Does A Coin Mean?

A crypto coin belongs to its personal blockchain. It is a crypto asset that also goes by “cryptocurrency”. The main thing that sets a coin apart from a token is that it has its own native blockchain and does not rely on any other cryptocurrency’s blockchain. There are some types of crypto assets mentioned below:

  • Ethereum: relies on the ether blockchain.
  • Litecoin: relies on the lite blockchain.
  • Bitcoin: relies on the bitcoin blockchain.
  • NEO: relies on the NEO blockchain.

Like mentioned before, this is a form of digital currency. Unlike traditional currencies, there are no physical coins involved when it comes to trading coins from one person to another. These coins are located on the blockchain of the crypto asset and they track and record the transactions made by every user all around the world.

What Does A Token Mean?

A Token is reliant on another blockchain. Ether is the most common example of token blockchains, known as ERC-20 tokens. Tokens use other platforms as well, such as NEO acquires NEP-5 tokens. You can also customize tokens on the aforementioned platforms. Tokens are produced from and sold through ICO and are mainly used for crowdfunding to collect funds for projects.

Difference Between Coins And Tokens:

Coins are also called a ‘native token’ which further complicates the differentiation between the two terms. However, both of these are distinctive in their attributes and features. To round it up, the only difference between a coin and a token is the fact that a coin is native to its own blockchain, whereas a token relies on other blockchains. Coins only get used for payments, investments, and trading, etc. A token has many uses, it can be used to raise funds, buy products and services, and so on. Coins are expected to do the same work as money. They are used as a unit of account and for transfer purposes. Coins belong to their own blockchain and can be presented as a Bitcoin, Etherium, Litecoin, so on and so forth. Coins are used by businesses to store money and pay for investments and services they are produced as ERC20 tokens to make the process smoother and easier.

As far as blockchain tokens are concerned, they are valuable but we cannot consider tokens “money” like we consider coins to be so. Tokens are reliant on other blockchains, mostly Ethereum which helps users to produce tokens with the use of coins. Ethereum is basically the “fuel” for this process. Tokens are liked for their convenience, they are more functional than digital cash and also hold value for shareholders. Tokens are also used when one wants to have a vote on a crucial corporate decision or decisions related to technical changes of the platforms. Coins and tokens can be confused majorly. The difference between them is a fine line because both are used to transfer some sort of profit. On many platforms, you can use coins to produce tokens, coins can also be used for more than just payments. In simple terms, tokens cannot be liquified into normal currency, unlike coins. Crypto coins can be easily and immediately converted into normal currency. One thing that people understand well about coins and tokens is that coins are cash or currency. Whereas, a token is used for literally everything else. This may include rewarding employees, giving bonuses, votes, discounts, etc.

Various Types Of Tokens:

There are many sub-divisions of a token, all of which are mentioned below:

  • Security tokens – These tokens are responsible for representing shares of a corporation while also using all the perks of the blockchain. OldFi securities depend on tokens. These tokens are also used to electronically store and authenticate public information.
  • Asset tokens – These are the real deal. Asset tokens are backed up by physically existing assets like diamonds, gold, and even real estate. They are rooted to be the future of financial transactions of the digital capital market.
  • Stablecoins – These are a representation of stable currencies in comparison to cryptocurrencies. Most of these stable coins include physical currencies like dollars and pounds. They are backed by a reserved asset, and they derive their market value from external references.
  • Non-fungible tokens (NFTs) – Non-fungible tokens are a representation of unique items like art or virtual game items that can be bought only virtually. Like a virtual football game or a real estate game. Regular tokens can usually be split into smaller sections but NFTs, on the other hand, cannot be split up. NFTs can be purchased through different means, and many users use a WAX account to buy and hold NFTs. Read more about non-fungible tokens in our recent article.

There will always be some level of confusion when it comes to coins and tokens, as there is not an extremely prominent difference between them. The easy way to separate them from one another is that one has its own blockchain, whereas one is reliant on another blockchain. Coins are limited to cash use, whereas tokens are used for basically everything else. However, both of them carry their own significance in the modern economic structure.