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Tokens and Coins... How to tell the difference?

Updated: Oct 18, 2019



Cryptocurrency Basics: Tokens vs. Coins


If you are new to cryptocurrency then you have no doubt found that

there is a lot of technical terminology and jargon to wrap your head

around. The terms “coin” and “token” can be a source of much confusion

since they are often used interchangeably. While both of these terms can

be used for describing units of blockchain value, there are plenty of

differences between the two.


To understand coins and tokens better, it is important to consider

‘cryptocurrency’ as a parent category, under which you have ‘coins’ as

one sub-category and ‘tokens’ as the other.


This article shall look into the differences between cryptocoins and

tokens.


What Does Cryptocoin Mean?


In general terms, a cryptocurrency coin is an encrypted digital currency

which is meant to be used as a form of payment. Coins operate on their

own blockchain and are independent of any other platform. They can be

used to pay for services or stored as value, the same as regular currency

or physical money.


Bitcoin is by far the most popular cryptocoin in the world, but it is far

from being the only coin in the crypto space. In fact, there are at least

888 coins in existence at the time of writing this article.


Another popular terminology in association with coins is altcoin. These

are basically an alternative to bitcoins. Most altcoins, such as Litecoin

(LTC), Namecoin (NMC), and Dogecoin (DOGE) are a fork of Bitcoin

and developed using its open-source protocol.


However, this doesn’t mean that all cryptocoins are created on Bitcoin’s

code. Monero (XMR) is a leading example of a coin that has its own

blockchain but exhibits all the properties of a coin. Other well-known

examples include Ethereum (ETH), Cardano (ADA), and Ripple (XRP).


What are Cryptocurrency Tokens?


Tokens are digital assets that are (typically) issued on top of another

blockchain, such as Ethereum. In any case, tokens always represent an

asset or utility, and sometimes both.


Security tokens are different from utility tokens. Security tokens are

developed to be the organization’s share, such as the notorious DAO

project which was hacked immediately upon launch is categorized as a

security token. Utility tokens, such as BON tokens, have a certain use

inside the project and cannot be employed beyond this specified use.


For instance, your concert ticket is a real-world token. You can use it to

gain access to a concert at a certain place, at a certain time. But, you

cannot use it to pay for your restaurant bill. Digital tokens are the same.


There are currently 591 tokens listed on CoinMarketCap.


While tokens, like coins, are also a medium of exchange, they offer

functionality that is above and beyond cryptocoins. Tokens provide their

holders with an ability to take part in some form of activity on the

blockchain.


For instance, Augur is a decentralized prediction market that allows

users to bet on the outcome of future events and you need REP (Augur

platform’s native cryptocurrency token) if you want to place a bet on the

platform.


Tokens in some instances may also offer value to buyers through

buybacks. They are generally distributed to the public through Initial

Coin Offerings (ICOs), which can be called a form of crowdfunding.


EOS (EOS), Tron (TRX) and OmiseGo (OMG) are some of the best

known crypto tokens available in the sector. Ethereum is the most

popular platform where token development is concerned. However,

there are plenty of other platforms, such as Omni, NEO, Waves and

Qtum where tokens can be built.


What Are The Basic Properties of a Coin?


While cryptocoins can be built to have their own set of features and

properties, some of the more common properties include:


  • Fungible: One unit is equivalent to another

  • Acceptable: Widely accepted as a medium of exchange

  • Divisible: Can be divided into smaller units of value

  • Limited Supply: Supply is capped and constant

  • Uniform: Versions of the same denomination have similar value

  • Durable: Can be used multiple times

  • Portable: Can be carried in ‘wallets’ and exchanged


On the face value coins are not meant to perform any other function

beyond acting as regular traditional money to pay for goods and services.


What Are The Basic Functions of a Token?


Unlike cryptocurrency coins, tokens can be developed to fulfill one, or

several of the following functions:


  • Payment system: Can be used as a payment system between participants or a mode of payment

  • Digital asset: Can store value

  • Accounting: Can be used to count the number of API calls or identify the volume of torrent uploads

  • Stake: Can be used as a share stake in a start-up

  • Protection: Can be used to prevent attacks, such as acting as commission inside the Bitcoin network


The main difference between crypto tokens and coins is that tokens give

a holder the right to participate (to an extent) in the network.


Conclusion


Coins are largely methods of payments, while tokens may represent a

company’s share and perform other functions, like giving access to a

certain feature. Cryptocoins operate independently and can be used for

buying and selling goods and services, while tokens are designed for a

specific purpose within the project’s ecosystem.



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