WHAT IS THE DIFFERENCE BETWEEN A TOKEN AND A COIN?

Over time, cryptocurrency has continued to experience massive growth in its sphere, which causes the birth of new terminologies to refer to the newly emerged things. These terminologies are now so many that usually, people mistake similar ones for one another.

Tokens and coins are two commonly used words in cryptocurrency. Unfortunately, they are often mistaken or even synonymously used for one another. This is not right! They may have similar attributes, like both representing values, both being units created via cryptography but different types and the ability to exchange one for the other. However, they refer to two different things, and cryptocurrency users and enthusiasts should not confuse one for the other.

Another group of cryptocurrency users refer to both coins and tokens as cryptocurrencies. And this explains why many would want to purchase some crypto coins for themselves but end up with tokens in their ownership. This reason is why almost all Cryptocurrency users have both tokens and coins in their possession. It is understandable because many coins and tokens circulate in public as currency. But they may not be one because not all coins are cryptocurrencies, and also, not all tokens are cryptocurrencies.

Currency is simply a medium of exchange that could also serve as a store of value. Not every coin has the Some coins do not have the characteristics of a currency, so we should not regard such as a currency. However, Bitcoin ultimately has those features, so it is justified when we regard it as a cryptocurrency.

Inertia made the mistake of terming all coins and tokens produced after Bitcoin’s development in the crypto market as a cryptocurrency. However, many of them do not qualify for the term. Therefore, henceforth, think twice before regarding any coin or token as a cryptocurrency.

A significant difference in tokens and coins lies in how and where we could use the two of them. There are certain things that we could use tokens for but not coins and vice versa. There are also places where you could use coins and not tokens.

For better understanding, let us use cryptocurrency traders and investors. All traders of cryptocurrency invest but not all cryptocurrency investors trade. However, with all these intertwining factors conjoining these two, there are several distinguishing factors separating them.

We will examine these two terms thoroughly to understand better what they entail and the factors that differentiate them.

COINS

After Bitcoin’s development by Satoshi Nakamoto, people began to copy Bitcoin’s functions, operations and protocols as a guideline to help them develop other coins. Thus, we could say that Bitcoin set a status quo for the features, operation system, and protocols that every legit coin proceeding it should have. However, the term for these other coins developed after bitcoin is altcoins, the short form of alternative cryptocurrency coins.

An altcoin is a type of digital currency/money that was also developed via well-encrypted techniques, and the purpose of buying an altcoin is to attract more store-in value over time. So, basically, for coins, we have Bitcoin, and we have Altcoins. But in all, coins are digital money.

As the name implies, digital money is money in a digital form. Everything about digital money, their operations and transactions save up digitally. You can only access them digitally too.

A very famous example of this is the almighty Bitcoin. Bitcoin depends hugely on Blockchain, a publicly distributed digital ledger. It is through Blockchain that Bitcoin’s operations and data are stored up.

However, coins are pretty similar to physical money in terms of their shared characteristics. And as a result, so many people believe that coins will completely substitute or take physical money’s place someday in the future.

To know what differentiates a coin from a token, we will examine first the characteristics that a coin has.

CHARACTERISTICS OF COINS

The operations of a coin are on a blockchain, which is where every Crypto coin’s transaction is monitored. These operations are well encrypted, and any member of the blockchain network could access them. For example, if you perform any exchange with Ethereum, Ethereum’s Blockchain saves the receipt, and if someone exchanges Bitcoin, Bitcoin’s Blockchain saves up the receipt.

Coins share some similar characteristics with Fiat (physical) money. For example, they are acceptable, durable, fungible, limited in supply, portable and divisible.

Coins act as money, which is precisely the aim behind Bitcoin’s development, and was imitated by other crypto-coin developers like Litecoin and Ethereum, to mention but a few. Just like money, you could also send and receive Crypto Coins. El-Salvador has officially made Bitcoin their currency side by side with USD. Today, we can use cryptocurrency coins to purchase things as we do with money. Users could also earn coins by mining. For instance, you could earn more Bitcoin by mining.

TOKENS

These are like company assets but in digital form. People issue to the public for a project. They perform some similar functions as coins, in that depending on what token it is, we could use them for making payments, investing, and storing up value. But then, their operations are only effective within the ecosystem of the token’s project.

Tokens play the role of digital assets, as mentioned above, representing the shares of a company, giving access to the functionality of a project, serving as a medium of fundraising, and serving as a substitute for things.

Digital tokens can only be used precisely inside a specific project. For example, if you purchase a concert ticket, you can’t use it to pay for meals at a restaurant. It only works for that particular concert. This analysis should help you should have a better insight into what Tokens are.

To distribute tokens, you first create them on a blockchain, distribute them, sell them and then circulate them through the standard ICO (Initial Coin Offering). This process involves funding by a crowd towards a project’s development.

Conclusively, a token could go for economic purposes, just like money and serve as a company’s stock or stake for investors. It implies that token holders could also make profits by trading them. Tokens are of different types, each with distinct features. For example, we have Security, reward, asset, utility and currency tokens.

However, tokens had existed before crypto coins came around. And it just happens that it is now associated with cryptocurrency, and not that it entirely revolves around it. Tokens are everywhere, and we have all used one at some point in our lives. For example, dinner, movie or concert tickets, car titles, meal vouchers and so on are instances of tokens. But these ones are physical.

COINS VERSUS TOKENS

A significant factor that differentiates these two is that tokens don’t need a personal blockchain. Instead, they would always rely on successful coins’ Blockchain to operate. For instance, some tokens like Tether, BNT, BAT, USDC, etc., use Ethereum’s Blockchain to operate. The part of the Blockchain that tokens use is called smart contracts, which are like a series of computer languages aiding every activity of the users on the network.

There is also a difference in the aspect of transactions. For example, during transactions involving tokens, the tokens physically move when changing their location/ownership. Unlike tokens, coins only change in their account balance without physically moving around. When you make money transfers, does your money physically go to the other party? No! This transaction only reflects this change in figures in the wallet’s balance. Like the bank that holds on to fees after every transaction, the coins’ balance acts similarly by noting every activity.

Coins and tokens represent different things. Coins are money, while tokens represent assets. We can use coins for payments, and so, you could use them to purchase tokens, depending on how much value the token carries in ratio to the coin’s value.

Also, there is a limit to where tokens are accepted for payment, unlike coins that almost everyone accepts. Therefore, coins give liquidity much more than tokens.

Furthermore, unlike coins, the token holder could also be a participant in the token’s network. Thus, they are a significant player in the ecosystem of the token’s project.

Lastly, tokens are easily created, unlike Crypto Coins. Usually, some successful coins come with a ready-to-use template in their network for people to brand their tokens for trading. That way, even if you are not very knowledgeable technically, you could still make your market.

FINAL THOUGHT

There aren’t many differences between tokens and coins, but it is ideal not to overlook the few differences and know them to avoid unnecessary confusion.

But then, come to think of it, if we say that tokens are not like physical money, unlike coins, why do we also spend tokens like we spend physical money? I mean, payments with money involve cash physically leaving you and your balance to move to the other party just the same way tokens physically move. And yet, they aren’t like physical money? So, what is your view about this? Let us have it in the comments section below.

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SOURCE: https://blog.ijamexchange.ng/post.php?id=66&t=TOKENS%20VS%20COINS:%20THE%20MAJOR%20DIFFERENCES%20THAT%20THEY%20SHARE