For the most part, cryptocurrencies may be divided into two categories: coins and tokens.
Cryptocurrency is usually used for trading currency, store value, etc., and is the native currency of a blockchain. Tokens are very similar, or at the very least, they serve the same purposes. But most importantly, it uses the blockchain of another coin.
You can gain a better understanding of the cryptocurrency market if you grasp the differences between tokens and coins. Also, you’ll be able to talk about crypto trends while showing an in-depth knowledge of the market. There may be differences in the technology hurdles faced by token and coin projects. Tokens and coins are contrasted in this article, along with their respective functions and key characteristics.
What are crypto coins?
When a blockchain has its own native digital asset, it’s called a coin. For example, Solana uses the Solana blockchain; Bitcoin uses the Bitcoin blockchain, Ether uses the Ethereum blockchain, and so on.
The purpose of a cryptocurrency coin is to serve as currency. As a means of exchange and storage, coins can be broken down into smaller units of value, such as the 0.000103 ETH. Just like the coins we carry in our wallets, a crypto coin is a digital currency that isn’t regulated by any central bank.
Coins typically operate on their native infrastructure, deciding for themselves how they are created, how safe they are against attackers, how their supply is regulated, how transactions are handled or recorded, and how to reward users.
Within a network, a user can exchange their cryptocurrencies with another user—for instance, Bitcoin with Bitcoin or Solana with Solana, etc. One drawback is that there is no way to move funds directly across different networks. This means, for example, that a person cannot sell one Bitcoin and acquire 500 Solana from the Bitcoin network’s blockchain.
And it is at this point when exchanges become necessary. They connect buyers and sellers on the network of each coin. The exchanges record transactions on the different blockchains as they take place.
Therefore, exchanges are only an intermediary for the purpose of maintaining accounts. This is an important factor in ensuring that their records remain “bound” to their local blockchain infrastructure.
What are crypto tokens?
Crypto tokens, in contrast to coins, are considered assets. You can store, trade, and stake tokens to earn income. Shiba Inu, Chainlink, and Uniswap are all examples of tokens.
Tokens have different functions according to the sort of token they are. Shiba Inu, for example, is a cryptocurrency that just exists and has monetary value. On the other hand, UniSwap, an Ethereum-based platform token exchange, allows users to swap one token for another.
Transactional tokens are typically utilized when transferring money to ensure the lowest possible transaction fees. If you possess a token, you have a voice in the issuing platform’s governance process. You get two votes if you own two, and so on. As a result, tokens are extremely diverse.
Decentralized applications (DApps) use tokens, typically on an existing blockchain. Despite the fact that they share in the benefits of an existing blockchain, tokens do not have their own infrastructure to support their operations.
Crypto tokens are built to be transparent, programmable, trustless, and permissionless. There are a number of ways that a token might be programmable, but the most common is through software protocols known as smart contracts.
The term “permissionless” refers to the fact that anyone can engage in the system without requiring any specific identification. The “trustless” element means no central authority that controls the system; instead, it runs on the rules provided by the network protocols. Finally, transparency means that the protocol’s rules and transactions may be viewed and verified by anybody, regardless of where they are.
Types of tokens
Tokens can be categorized into the following:
Utility tokens facilitate the provision of blockchain-based to users. Advertisers utilize the Basic Attention Token (BAT) to pay publishers, who then reward their audience with BAT for viewing adverts on the Brave web browser.
Conventional securities like stocks and shares have been transformed into digital tokens on the blockchain and are known as “security tokens.” With these tokens, investors can own a piece of the company they’ve backed. Holders of security tokens share in the company’s profits in the same way that traditional stock investors do.
Non-fungible tokens (NFTs) are cryptographic tokens that are one-of-a-kind and exist only on a specific blockchain. They are used to signify ownership of unique assets digitally. You could trade them, but they are not mutually interchangeable because of their uniqueness.
Token holders can propose and vote on modifications to a blockchain project’s governance structure using governance tokens. This allows users to have a direct impact on how a protocol works and develops.
There are a variety of token standards in use by crypto projects when it comes to creating tokens. ERC20 and ERC721 are two of the most often utilized token standards, allowing tokens to smoothly interface with the Ethereum network. ERC721 generates non-fungible tokens, in contrast to ERC20, which supports tokens that connect with the Ethereum DApp suite.
Fundamentally, a coin and a token are very similar things. Both have value and are capable of processing payments. Coins can be exchanged for tokens and the other way around.
It boils down to which one has the most value to the user. With tokens, you can do things that you can’t do with coins. Also, there are marketplaces that accept coins but not tokens.