The stunning rise of the cryptocurrency industry over the past two years has attracted many people – investors as well as bystanders. While some saw a lucrative opportunity to make money relatively quickly, others followed a more patient approach by reading and understanding the business. Being a new industry, it involves a lot of new terms to refer to digital assets and people often use them interchangeably.
For instance, many believe crypto coins and tokens are the same. However, they are not. At a basic level, all coins are considered tokens but not all tokens are considered crypto coins.
Why is that? What are the factors that determine which is what? For beginners in the trade, the utility of crypto can help to distinguish between a coin and a token. Here are the key differences:
– A coin usually is native to a blockchain and is used to trade currency and store value. A token is pretty similar, but it tends to use another coin's blockchain. Consider, for example, Ethereum, a blockchain. Its native coin is Ether. However, several other tokens like BAT and Loopring operate on this blockchain.
– Coins directly represent a proposed medium of exchange. Tokens, on the other hand, represent an asset. The tokens can be held for value, or traded and staked to earn interest. Some examples of tokens are Uniswap, Chainlink and Polygon.
– Crypto coin transactions are handled by blockchain and tokens rely on smart contracts for trade.
– When a token is spent, it moves from one place to another. For example, NFTs (no-fungible tokens) are one-of-a-kind items, so the change in ownership must be manually handled. A coin doesn't have to be moved from one place to another. All transactions are recorded on blockchains.
– Simply put, a token represents what a person owns, while a coin denotes what they're capable to own. Additionally, everyone has used a token at least once in their life even if not in this form. For example, your car title is a token. When you sell the car, you transfer the value of the title to another person. However, you can't buy something else with that title.