Cryptocurrency is on the rise, and it has been on the rise for the past decade. With some of the wealthiest people in the world investing in cryptocurrency, such as Elon Musk, you’ve probably wanted to sit down and learn more about it.
Most people who are only getting into cryptocurrency often think coin and token are the same things. However, there’s a huge difference that you need to learn before you dive deeper into the world of cryptocurrency.
In this article, you’ll find everything on coin and token, their differences, the way they work, but also some examples, so you witness the difference first-hand!
Are Coins And Tokens The Same Thing?
It would be easier if coin and token were the same things. Unfortunately, they’re not the same thing.
They are built differently, they serve a different purpose, and they’re used differently.
The main misunderstanding comes from the connection of coin and token in the cryptocurrency world, but they’re two different things.
Coins can be considered a payment method (just like real money), while tokens can be considered shares (just like stocks in real life).
The huge difference lies in the value that coin and token provide so keep reading to learn more about each one of them.
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What Is A Coin?
The coin is a digital asset known as cryptocurrency, which was designed as a decentralized payment method that no one owns and that no one can trace.
Therefore, a coin is best understood as a digital currency where various types of coins can be considered different currencies, just like the “real” currency we use daily.
The main difference between centralized currency and cryptocurrency (coins) is that coins are built on a computerized database known as the blockchain, ensuring safe and secure transactions and decentralization.
What Is A Token?
A token is like a share of stock that anyone can create on existing blockchains (computerized databases) and use to store value.
It’s best to consider the token as an asset that you can trade but not an asset to use as a payment method.
Therefore, a token is often used for investment or economic purposes. While you can’t purchase anything with a token, you can use it to “get” something in return for a trading asset.
Even though the difference is still not very clear, keep on reading as I dive right into the examples where you can see the difference a bit more clearly.
How Do Coins Work?
Each coin has its blockchain behind it. A blockchain is a computerized database that holds information such as transactions, number of coins, and more in the system to ensure its operation.
Coins are built on the blockchain and are proprietary to the blockchain, meaning they can’t work without it.
However, if a solid blockchain and coins are made, they’re considered a cryptocurrency that you can use just like any other currency to purchase products, pay for goods or services, and more.
All transactions you make using your coins are logged into blockchain technology. This technology is decentralized, so it’s not owned by anyone, and no one can access the transaction records.
This also means that no one can track transactions, and by using coins to pay for things, your transactions are fully private.
Of course, to store all your coins, you will need a digital wallet.
How Do Tokens Work?
Digital tokens don’t need to have blockchain technology, yet they can be built on other available blockchains.
Therefore, you can use any cryptocurrency blockchain that has its coin to create tokens.
When the token is created, its purpose is determined. There are various token types and they can be anything from security tokens to assets, utilities, or even payment tokens.
People who create tokens can store value in their tokens or create tokens for others.
Most tokens are created by services that reward their users with tokens instead of using the traditional payment method. From there, users can sell their tokens or keep them as shares and wait for their value to increase.
Often, users can create tokens to grant access to certain users, while others tend to hold a fixed value.
Tokens can not be used to make purchases, but you can still trade them or hold onto them.
How Is It Used?
Coins
Coins are used to purchase products or services digitally in full privacy. Coins are stored in a digital crypto wallet.
Whenever you want to pay for something, you copy the cryptocurrency address from the store or the seller, paste it into your crypto wallet, type in the right amount, and send the payment.
However, users can also cash out digital coins at ATMs that support cryptocurrency.
Tokens
Tokens are often created by companies determining how many tokens they create and how people will share them.
Tokens can store value in them by representing a physical object. For example, if you’d like to sell your gold bar virtually, you can’t put the gold bar on a smart contract.
However, you can create a token representing the value of your physical gold bar and add the token to the smart contract.
For example, some services create their tokens to avoid using the traditional payment method. Often, users of various services are also given rewards via tokens.
Verdict
While coins are easier to understand, tokens are a bit harder to understand, but the true meaning is understood when tokens can help you in a scenario.
Coins have a straightforward use, while tokens are built to accommodate different needs as they can hold value and represent the value of physical objects.
Use of Blockchain
Coins
Coins can’t be created without their blockchain technology. Therefore, each coin (such as BitCoin) has its Bitcoin blockchain technology behind it.
With the help of the proprietary blockchain, coins can be used to process payments. Without the blockchain, coins would be coins without a purpose.
That’s why coins are a lot more difficult to create since you can’t create them anywhere you want, yet a lot more complex technology that powers coins is needed.
Tokens
Tokens don’t need their blockchain to be created. Since they can be created on existing blockchain technology, they’re very easy to create.
Most popular blockchain technologies such as Ethereum blockchain offer users the ability to create tokens on their blockchain.
However, keep in mind that the creation of tokens costs and it has to be paid in the blockchain’s currency, which in this example is Ethereum coin.
But what you should also keep in mind is that you will also have to pay a blockchain fee every time you transfer the token as the technology resources aren’t free.
Verdict
Another huge difference between coins and tokens is how they’re created and their correlation with the blockchain.
Coins need blockchain technology, while tokens are easier to create since they can be created on existing blockchain technology.
The only thing to keep in mind is that there are fees involved in creating tokens because blockchain technology isn’t free to use.
Worth
Coins
There are different coins, and the prices vary. Some of the most known coins, such as Bitcoin, are the most valuable coins.
On the other hand, new coins are constantly surging, and while their value is typically lower, they tend to increase in value over time.
You can track the worth of every coin by doing a simple Google search of the coin’s name. Investing in coins is very popular, and even though it’s very risky and unpredictable, it can bring high rewards to everyone who’s in it for the long run.
Tokens
While the demand determines the value of coins, tokens’ value is determined differently.
The value of every token is set up-front, and in some cases, it’s fixed. If a token represents a physical object, the token’s value represents the value of the physical object.
Therefore, every token has a different worth and considering that tokens are multi-purposely used, you have to pay attention to each token you receive.
Some companies and services tend to send out tokens as rewards where each token is worth a different amount.
Verdict
Coin’s worth is easy to understand as it depends on the supply and demand, which isn’t new to us.
However, tokens can hold different values even if the same person or a company creates them. Since tokens can represent the value of physical objects, creators set the worth of the tokens.
Purpose
Coins
The main purpose of coins is to offer a decentralized system where coin holders have the power over the coin’s currency rather than a centralized bank owning the currency.
Coins also help provide secure and anonymous transactions and even make paying for services and products on the internet very secure.
Crypto coins are trying to solve a couple of issues we have with the centralized currencies we use daily.
However, coins also reduce costs and fees that are associated with handling or holding the currency.
Since some of the earliest coins, such as Bitcoin, were created right after the 2008 financial crisis, coins ensure that users don’t have to rely on the banks, government, or companies.
Tokens
Just the way we can use digital currency, there needs to be a way to give physical items value in the cryptocurrency world and have a way to trade easier without having to rely on the coins for all of our transactions.
Therefore, the main purpose of a token is to represent assets, help with specific use between a provider and the user, and help make investments easier.
One interesting use of tokens is to raise funds for crowd sales.
Verdict
Since coin and token are two different things, they have different purposes. The coin was invented first, and the token can be considered a “helping hand” that supports blockchain technology and is as helpful as coins.
While their purposes seem to be different, they’re working well together and can be combined to match the users’ needs.
Security
Coins
If you ever wondered why digital coins are called cryptocurrency as a whole, here’s a quick answer.
It is because every coin and its blockchain use encryption to verify transactions. Without verifications, transactions can’t be completed.
But with verifications, coin transactions are easily moved between wallets and are only written in the ledgers to track the quantity of the coins.
With the advanced encryption behind the transaction of coins, paying with coins is very safe and secure, and most importantly, all transactions are anonymous.
Tokens
Since tokens are based on the same blockchains used to run coin transactions and keep track of coins, tokens are as secure as coins.
The same encryption that happens behind the scenes is implemented, and you won’t have to worry about security.
Keep in mind that security tokens ensure that you hold ownership of the blockchain ledger. This is equal to owning and holding any coin.
This makes tokens “legit,” and that’s the only reason they can represent the value of physical objects and can be included in smart deals.
Verdict
It’s fair to say that both coin and token are based on the same blockchain technology that is very secure.
The way you trust coins, you can trust tokens without having to think twice before signing a smart deal.
Creation
Coins
The most popular way to create coins is by mining. Mining is a way of using computers to verify transactions in the code, which helps create new coins. Mining is a way of solving mathematical problems that create new coins and give them security.
Every cryptocurrency has a limit on the coins that can be created, and every blockchain will determine the number of coins there will be.
However, not all coins are created through mining. Some coins are strictly bought instead of mined. A great example of this is a Ripple coin.
Tokens
Tokens don’t have to be mined, yet they are created by coding. Since tokens don’t need their blockchain, you can choose any blockchain that offers token creation and base your token on that particular blockchain.
From there, tokens are added to existence and are monitored and tracked by blockchain technology. However, to create a token, you will need to pay the creation fee to the blockchain in the blockchain’s coin.
For example, if you create a token on Ethereum, you will have to pay the fee in Ethereum coin and any other fees that occur later on.
Verdict
While tokens are easy to create as long as you find a blockchain that allows its creation and you have funds ready, on other hand, coins are not that easy to generate.
Coins are created even before they’re released to the market, or they’re being mined until the coin limit is reached.
Examples
Coins
The best coin examples are the most popular coins you might have heard about. Coins such as Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Stellar Lumen (XLM), or others.
As long as there is a blockchain, a coin can be created, and that’s why there are so many different coins out there. Don’t be surprised to see a couple of versions of Bitcoin, such as Bitcoin Cash (BCH) or Bitcoin Satoshi’s Vision (BSV).
While these are some of the most known coins, there are almost 4,000 crypto coin currencies. However, some of them aren’t popular, don’t have a following, and aren’t popular in trading, resulting in less value.
Token
Since there are so many different uses of tokens, they’re hard to understand.
However, here’s a great example of a token that represents the value of a physical object. WePower is a company that introduced tokens that represent electricity.
With these tokens, you can buy or sell electricity on blockchains using smart contracts. Each token represents a certain amount of energy, and you can trade energy, keep it, wait for the value to increase, or trade it for something else.
Civic is another example as they tend to reward their users with discounts through tokens that hold and represent the discount value.
Verdict
Coins are easier to understand from examples as they work the same way currency works in any country in the world.
However, tokens can be used for a different purpose, but these examples are a great way to show the capabilities of tokens for trading or investing.
Can Token Become a Coin?
No, tokens can not become coins. Coins are created differently, and they have different purposes.
On the other hand, tokens are easier to create and have more than one purpose, and people can use them in many different situations.
However, a token can’t become a coin, and if you were confused by similar names, that’s because some tokens are named after the blockchain they’re built on.
How Are Tokens Created?
Just because tokens are easier to create than coins, it doesn’t mean that they’re really easy and that anyone can create them.
Token creation requires technical abilities, coding knowledge, and specific blockchain knowledge.
However, if you have the knowledge and ability, a token doesn’t take a long time to be created.
But when the token is created, it must be verified by the blockchain’s miners first to be valid. This is one of the fees you will have to pay upon the creation of the token.
Additional fees might occur down the road for every token transaction that happens.
Are Tokens A Part Of Cryptocurrency?
Tokens are a part of cryptocurrency because they are created on the same blockchain that coins use.
It is also a part of cryptocurrency because it provides a way to get more out of cryptocurrency without relying on coins for everything you do.
Therefore, you can think of coins as the currency and tokens as the investment, shares, or bonds in the digital world.
While tokens and coins are two different things, they have some similarities and one thing in common: the use of blockchain technology for their operation.
Therefore, yes, tokens are considered a part of cryptocurrency.
Is Ethereum A Coin Or A Token?
Many people are confused by Ethereum up to the point that they don’t understand if Ethereum is a coin or a token.
Ethereum is a coin. As a coin, it has its blockchain to help its coin operate.
However, since Ethereum has blockchain technology, they decided to make it very simple for people to create tokens on their blockchain.
That’s how a token called ERC-20 was invented, and with the increase in popularity, it became the standard token used for trading.
Therefore, Ethereum is a coin, but it also has tokens built on the blockchain named after the blockchain.
Coin vs Token – Similarities & Differences
Similarities
Both coin and token have the following things in common:
- They’re a part of cryptocurrency
- They are created on the same blockchain type
- They have value and can hold value
Differences
- Coin is made to replace the centralized currency, improve security, and offer anonymity
- Token can be used for more than only payment processing
- Token is easier to create while the coin is harder to create
- Token doesn’t need its blockchain while coin needs its blockchain
- Token’s value can be pre-determined while coin’s value depends on the supply and demand
Token vs Coin – Pros and Cons
Coin Pros
- Provide a decentralized and anonymous currency
- Lower transaction costs
- Fast transactions
- Coin holders are the only ones who have power over their money
- Coins can’t be inflated
Coin Cons
- Coins get harder to scale as they reach the limited quantity
- Cybersecurity issues
- Lack of regulations
- Price volatility
- There are over 4,000 different coins
Token Pros
- Provide a great way to trade and invest
- Easy to create
- Can represent the value of physical objects
- Are valuable for use in smart contracts
- Can be created on other blockchains
Token Cons
- Can’t be used for payment transactions
- Cost associated with the creation of tokens and their transactions
Conclusion
The cryptocurrency and blockchain industry is rapidly growing, and it’s hard to catch up, learn everything, and then start using the coins or tokens.
Even though coins and tokens might seem like they’re the same thing, there are differences.
Coins and tokens differ in how they’re used, the way they’re created, and the purpose they fulfill for the cryptocurrency.
If it’s still hard to understand the difference, I recommend you look at examples again or try to compare the coins and tokens to the currency you use daily and shares you can invest in.
