What Is a Token, Coin and How Do They Differ?

What Is a Token, Coin and How Do They Differ?
Jul 27, 2022 0
What Is a Token, Coin and How Do They Differ?

You may hear many such words as "coin" and "token"; for some people, these concepts are almost identical. But these terms mean different things both from the functional and technical sides. Let's sort this out.

Coins

Coins are a cryptocurrency that runs on their blockchain, which confirms transactions and ensures their reliability. Coins can be exchanged for each other, sent to other people, and received; they are also divisible.

In other words, coins are any cryptocurrencies that operate based on a separate blockchain:

  • Bitcoin
  • Ethereum
  • Litecoin
  • Bitcoin Cash
  • Monero

A new coin may also appear as a result of a fork of an existing one - this is a branching of the blockchain, resulting in a new chain of blocks.

For example, bitcoin has an open code, so everyone can use it to create a new cryptocurrency. So, at one time, Namecoin (Namecoin, NMC) and Litecoin (Litecoin, LTC) appeared — forks of Bitcoin.

Coin Characteristics

  • The most crucial distinguishing feature of a coin is the presence of its blockchain, usually with unique properties;
  • They have individual encryption algorithms;
  • They perform the function of money: they can be used to purchase goods, and services, conduct transactions between users, etc.;
  • Coins are an independent type of asset stored in the owner's electronic wallet (for this, he does not need to interact with a bank or any licensing authority).

What is a token?

How does a token differ from a coin?

A token is a virtual asset, a digital certificate, and an analog of securities (shares) used in the world of fiat currencies.

The token fixes the company's obligation to the token holder. In addition, it is a unit of calculation that operates based on other platforms.

The scope of use of tokens is wider than that of coins:

  • they are used to provide services;
  • to certify and confirm the rights to something inside the platform itself;
  • they can be exchanged for some other services or sold for another currency;

The token is a powerful investment tool for startups, allowing their owners to receive funding and popularize their platform. The most popular platform for creating tokens is the Ethereum blockchain.

Tokens can be compared to gift certificates from stores: they cannot be used, for example, as a ticket to a concert or a football match.

Also, tokens are like the store's certificates: they can be exchanged in a specific place and for a particular purpose — to get something from the assortment of this store.

Token Characteristics

  • The token does not have its blockchain, which is its main difference from the coin. It is created and operates based on an already existing protocol of an already existing platform and complies with a certain standard;
  • Tokens are issued in quantity required by their creators;
  • If necessary, this amount can be increased (additional emission) or reduced (burning of tokens);
  • Tokens are managed using smart contracts.

According to their purpose, there are several types of tokens:

  • Payment tokens. They are used as a means for calculations.
  • Service tokens. They are issued as a unit of calculation within a certain community (platform).
  • Exchange tokens. They are used as fuel for conducting exchange operations and bring additional bonuses, discounts, and dividends to traders.
  • DeFi tokens are an independent financial ecosystem where users can interact without the involvement of a third party.
  • Application Tokens (App Coins).
  • Stablecoins.
  • Non-interchangeable tokens.

For example, the HitBTC token (HIT) is a service token of a crypto trading platform. Its holders receive discounts on trading fees, low commissions for trading pairs on the exchange, and other benefits. 

In addition to the HitBTC crypto exchange has its token, there are more than 800 exchange pairs — tokens and coins of all kinds, which we have listed above.

Of course, you can change and purchase popular coins and tokens or use futures/stake crypto on any popular exchange. It could be a centralized exchange (CEX) whose primary difference is that it is controlled by a certain organization (such as Binance or HitBTC) or a decentralized exchange (DEX) where your account is a wallet, not an account (such as Uniswap, SushiSwap).

Let's summarize

A native blockchain coin and a token are different crypto market tools. 

The main difference between coins and tokens is that coins work on their independent blockchain, whereas tokens are created based on an existing one.

It is easier to create a token — it is enough to use a ready-made template on one of the platforms. And to get a new coin, you need to develop a new platform or change the code of an existing one (fork).

Most tokens are created to gain access to smart contracts and dApps, but they can also be used as shares, votes, and ownership certificates. They are usually generated during crowdfunding (ICO/ST. Crypto coins are a digital payment method generated through mining or staking.

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