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
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
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
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.
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.