What Is the Difference Between a Coin and a Token?

The modern cryptocurrency market has thousands of different digital assets. Sure, Bitcoin (BTC) and Ethereum (ETH) are the most popular ones, but there are countless altcoins that have their own blockchains and entire ecosystems like NEO, Ripple (XRP), Litecoin (LTC), Monero (XMR), and others.

People often refer to cryptocurrencies as coins or tokens. A beginner in the crypto world may find it unclear whether coins and tokens are actually one and the same thing. Many people do use these two expressions as synonyms, but they are really two very different things and we are going to clear this confusion up right now.

Knowing the right expressions when dealing with cryptocurrencies is essential in order to understand the full potential of different cryptos, what they are used for, and how they work.

Cryptocurrency Coins

A crypto coin is a digital asset which has its own blockchain, like Bitcoin, NEO, or Ether. When an asset has its own blockchain, this means it is independent of any third-party system and is entirely based on the blockchain technology of the developer team behind the project.

These coins enable individuals and companies around the world to make financial transactions using the coin’s ecosystem for payments and transfers as they see fit.

The system nodes of each blockchain are responsible for verifying every transaction of the coin in question. Blockchains are digital public ledgers that list all the transactions that are happening on that particular network.

What Are Coins Used For?

Crypto coins can basically be used in the same way as fiat money: as mediums of exchange and stores of value, except that they don’t physically exist beyond their blockchains and the crypto wallets you are storing them in. Numerous crypto coins are simply used as cash for paying services, buying products, and investing money on crypto exchanges in order to increase your funds by trading.

Transferring money without the need to use classic financial institutions such as banks is growing more and more popular since the slow transfer times that are often associated with banks can totally be evaded this way. 

Some crypto coins can also be used for other things, not only payment options and money transfers. ETH is used to fuel Ethereum blockchain transfers. Crypto tokens can be built based on the Ethereum blockchain, but you still need ETH to pay for transfer costs when facilitating transactions.

NEO, on the other hand, can be used to earn dividends in GAS tokens based on the NEO blockchain. These dividends are awarded for merely storing NEO in your wallet. Numerous other altcoins can be used for scores of options, and this is why you should get to know each of them in order to find out what they can be used for.

Bitcoin vs Altcoins

The most popular crypto coin is definitely Bitcoin. It is also the first digital currency with its own blockchain, and it is regarded as the coin that brought crypto assets into the mainstream.

So far, BTC has had the highest value of any cryptocurrency.

All other crypto coins besides Bitcoin are known as altcoins, with some of the most popular coins on the market being Ethereum, Ripple, NEO, Litecoin, Cardano, and Stellar Lumens. Their prices are volatile and each of these coins has different characteristics and use cases, and are all worth exploring so you can find which ones suit your needs.

Of course, you shouldn’t limit yourself to only one coin. You should diversify your portfolio of crypto coins in order to use them for different services and transactions according to the options their blockchains provide.

Cryptocurrency Tokens 

A crypto token is a digital asset that is built on an already existing blockchain, utilizing the network’s technology to facilitate transfers, smart contracts and other useful options. Ethereum is surely the most popular blockchain for creating crypto tokens on the web. Generally, tokens that are based on the Ethereum blockchain are known as ERC20 tokens.

The other most popular blockchain for creating tokens is the NEO network, regarded as the main competitor of Ethereum. Crypto tokens based on NEO are referred to as NEP5 tokens.

You don’t need any kind of special clearance to create a custom token on these blockchains. Anyone can make one using the technology provided by these platforms.

How Are Tokens Created?

To create a token, you just need some basic programming experience. Plus, the token developer needs to study the native coin’s blockchain in order to create a custom token. When a new token is created on a blockchain, it needs to get verified by the network’s nodes or miners, in order to become a valid token. 

When a token is created, it is subject to transaction fees on the blockchain just like every transfer by any other token on the blockchain, or the native crypto coin. If someone is building a decentralized application on the Ethereum network using an ERC20 token, every transfer is subject to transaction fees (paid in ETH).

What Are Tokens Used for?

Crypto tokens are mostly used for powering decentralized applications (dApps). When a startup or a developer team starts a project and creates a custom token for their application so it will facilitate transactions and power the dApp, the team can decide how many tokens they want to create and for what purpose they’ll be used.

A portion of the newly created crypto tokens will surely be used as a payment method on the native blockchain, and a portion can be used as an incentive for members of the project’s ecosystem or as a reward system for contributing to the project.

Tokens are also used as a way to motivate users of a dApp to unlock different features by collecting tokens, such as the Musicoin platform which has its own token that unlocks videos or song streaming services. The BitTorrent platform also has its own BTT token that can be used for powering numerous dApps like BitTorrent Speed, BitTorrent File System, DLive, and others.

Some crypto exchange platforms have their own tokens like Binance, with its BNB token that enables users to trade with 50% lower fees on the platform when they use this token.

Security Tokens

A popular way of issuing crypto tokens is through a fundraising method called an Initial Coin Offering (ICO). This is a way of gathering the initial funds to back up a crypto token and most of the tokens issued like this are called security tokens.

People invest in such tokens and expect to profit from the investment.

Utility Tokens

Utility tokens are special tokens whose purpose is to provide people with a means of paying for services and products.

Platforms that have their own tokens motivate users to explore different possibilities of the platform in order to earn tokens that can be exchanged for products and services.

Payment Tokens

Payment tokens have only one purpose: to be used as a payment method and as a means for financial transactions, like the BNB token which is solely used to facilitate money transfers. 

Equity Tokens

Finally, you have equity tokens that are basically a sort of a stake in the company or project that issues the tokens.

When a token represents company stocks, it is an equity token whose value depends on the value of the company it’s tied to.

A Few Words Before You Go…

As you can see, the difference between crypto coins and tokens is huge, even though people often confuse the two expressions, failing to differentiate these two separate types of digital assets.

There are thousands of coins and tokens on the crypto market today, and the only way to get to know what each of these digital assets is good for is to do some thorough research, depending on what you want to use your crypto for.

New coins and tokens are constantly appearing and the market cap is jumping all the time, creating numerous opportunities for investment and use of different assets.

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