Crypto Coin vs. Token: Understanding the Difference

Crypto Coin vs Crypto Token


Understanding the difference between coins and tokens is a huge undertaking in the context of cryptocurrencies. Even though both these terms are often used interchangeably, they refer to two different concepts in the crypto ecosystem.

 

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What is a coin?

Coins refer to cryptocurrencies built on their independent blockchain network. The most famous example is Bitcoin (BTC), which is also the world’s largest cryptocurrency by market capitalization.

Bitcoin is powered by its native blockchain network. Similarly, Litecoin (LTC) and Ethereum (ETH) function on their respective blockchains. These blockchains may differ in their size, rules, miners, performance, etc.

How are digital coins used?

Digital coins are designed to serve the same purpose as physical coins: Transfer of value. In the crypto ecosystem, digital coins enable the transfer of payments. Digital coins also store value directly linked to their demand and supply. Therefore, the value of digital coins is often volatile.

There are a few exceptions to this, though. For instance, Dash (DASH) ownership will allow the customer to vote on decisions proposed to the DASH network. In the case of Bitcoin, however, the only way to get more Bitcoin is to buy or mine them. Lest we forget, you can also accept Bitcoin as a form of payment.

What is a token?

In the meantime, tokens refer to cryptocurrencies that don’t have a blockchain network of their own. Instead, these cryptocurrencies are built on another blockchain. Users can create digital tokens using one of the many platforms in the Defi (Decentralized Finance) ecosystem.

Ethereum is one of the most popular choices, thanks to its support for smart contracts. Most of the digital tokens found today are ERC-20 tokens since the Ethereum platform easily enables creating tokens on top of the Ethereum blockchain. Currently, thousands of tokens exist in the market. Tether (USDT), USD Coin (USDC), DAI, UMA, and Basic Attention Token (BAT) are some of the commonly-used digital tokens out there. These tokens may have powers other than value transfer.

Token Vs. Coin — The core differences

To sum up, some of the key differences between a digital token and a digital coin are as follows:

  1. Digital coins are based on their native blockchain network, tokens are built on the existing blockchain.

  2. Digital coins can be used for processing payments, but tokens are suitable for multiple needs.

  3. Digital coins are more difficult to create than tokens that can be built based on the existing blockchain like Ethereum.

Digital coins are mostly distributed through mining, while tokens became popular through ICOs. (Initial Coin Offering)

 

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