Comprehending crypto jargon can be a complex and daunting task, especially terms like coin and token. Most of us would have confused a coin with a token at some point in our crypto journey. Some might even think both are the same.
Although coins and tokens represent blockchain-based digital assets, they are technically distinctive. This article will explore the difference between coins and tokens, their use cases, and examples.
What Are Crypto Coins?
A crypto coin refers to any cryptocurrency with its own blockchain rather than running on another blockchain. In other words, crypto coins are native to their own blockchain.
When Bitcoin hit the market, it established the standard for what it means to be a coin. Coins, like traditional currencies, are primarily designed to act as a medium of exchange and store value.
What Are Crypto Tokens?
Crypto tokens aren’t native to a blockchain. They are built on another blockchain, utilizing the underlying smart contract functionality to offer various services.
While crypto coins are equivalent to traditional currencies, tokens are more like assets (both physical and digital). Presently, a token can represent digital art or music, a share of ownership in a DAO, and even coupons or vouchers.
Difference Between Coin and Token: Coins Vs. Tokens
The table illustrates the critical differences between crypto coins and tokens.
| Parameters | Crypto Coins | Crypto Tokens |
| Blockchain | Native to their own blockchain | Built on another blockchain – mainly, the Ethereum network |
| Use Cases | Initially, created as a replacement for fiat currencies, but evolved with the help of smart contracts | Utility, Security, Governance, and NFTs |
| Quantity per blockchain network | Only one coin per blockchain | Multiple tokens can exist on the same blockchain |
| Price level | Generally higher than tokens | Lower than crypto coins |
| Distribution | Mined through Proof of Work (PoW) or earned through Proof of Stake (PoS) protocol | Created and distributed by project developers |
| Examples | BTC, ETH, BNB, XRP, ADA | USDT, USDC, DAI, UNI, SLP |
P.S. Crypto coins or tokens, invest in both using Mudrex Coin Sets
Use Cases of Crypto Coins
Crypto coins are bootstrapped from scratch instead of relying on existing blockchains. They are typically used for one purpose: to act as an alternative to fiat currencies.
Coins hold the following properties.
- Store of value
- Medium of exchange
- Transfer to other users
- Payment for goods and services
However, after the introduction of Ethereum, the most used smart contract platform, crypto coins evolved to offer additional features, apart from acting as traditional currencies. These features include voting rights, the scope for earning dividend payments, etc.
Use Cases of Crypto Tokens
Tokens offer multiple functionalities, including security, utility, and governance.
1. Security tokens
Security tokens are digital contracts representing fractional ownership of financial assets (like stock or even real estate). As these tokens are comparable to traditional securities, it’s regulated by government bodies in many jurisdictions, including the U.S., Singapore, Germany, and Switzerland.
2. Utility tokens
Utility tokens offer the holders several functional benefits, like access to products and services. They are built to work within a particular project’s ecosystem like dApps, or play-to-earn (P2E) platforms. Most utility tokens are created using the Ethereum network.
3. Governance tokens
Governance tokens provide the holders voting power in a blockchain project like DeFi protocols or DAOs. With the help of governance tokens, community members can directly influence the project’s direction.
4. Non-fungible tokens (NFTs)
A non-fungible token is a digital ownership certificate for a non-replaceable and unique asset on the blockchain network. The asset can be digital art, music, video, baseball cards, or in-game items.
The first NFT was created on the Ethereum blockchain in 2015. It went ballistic in early 2021 when Beeple sold his artwork for 69 million USD at the esteemed Christie’s auction house.
5. Stablecoins
These are tokens pegged to “stable” reserve assets like U.S. Dollars, Euros, or gold. The objective of stablecoins is to provide a feasible alternative to highly volatile cryptocurrencies, which are less suitable for wide use in transactions.
Crypto Coins Examples
Bitcoin (BTC), Ethereum (ETH), and Binance Coin (BNB) are the top three crypto coins in terms of market capitalization.
1. Bitcoin (BTC)
Bitcoin is the world’s first crypto coin, launched in 2009 by an unknown person or a team using the name “Satoshi Nakamoto.” Its first mover advantage has enabled it to become the most valuable cryptocurrency. It was envisioned to replace fiat currencies. Currently, it’s being accepted as a form of payment by certain large corporations and has also become legal tender in El Salvador.
2. Ethereum (ETH)
Ethereum played a vital role in the evolution of blockchain technology. It introduced smart contract technology, which led to the creation of numerous blockchain projects and NFTs. ERC-20 token standard is the protocol for creating tokens on Ethereum. Projects create decentralized applications on the Ethereum network using smart contracts, and issue native tokens within the application.
3. Binance Coin (BNB)
Binance Coin is the cryptocurrency issued by the Binance exchange. BNB was initially released as a crypto token based on Ethereum but is now the native currency of the Binance chain, an independent blockchain network.
Crypto Tokens Examples
When it comes to tokens, Tether (USDT), Smooth Love Portions (SLP), and Filecoin (FIL) are some notable examples.
1. Tether (USDT)
Tether is a stablecoin pegged to U.S. dollars based on the Ethereum network (ERC-20 standard).
2. Smooth Love Potion (SLP)
Smooth Love Potions are a part of Axie Infinity, one of the top play-to-earn (P2E) games. Players earn or purchase SLPs to get access to exclusive in-game activities.
3. Filecoin (FIL)
Filecoin is the Airbnb of cloud storage. It allows users to spend the tokens in exchange for storing data on their decentralized network.
Conclusion
To summarize, a coin has its own blockchain, but a token doesn’t. Also, a coin represents buying power, whereas a token represents what you own.
The difference between coins and tokens isn’t significantly vast in their current form. However, with the evolution of blockchain technology, both crypto assets are bound to expand beyond their existing characteristics.
FAQs
1. Is Bitcoin a coin or a token?
Crypto coins usually have their own blockchain, whereas tokens do not have their native blockchain. Since Bitcoin (BTC) operates on its own blockchain, it is a coin. Tether (USDT) can be an example of a token since it runs on the Ethereum blockchain
2. Is a token better than a coin?
Tokens do offer more applications than coins. However, both solve different purposes. Moreover, crypto coins are evolving to provide features similar to tokens.
Hence, we can’t say that tokens are better than coins.
3. Can a token become a coin?
Yes. A token can become a coin when the project develops its own blockchain network. Successful migrations include Binance Coin (BNB), Zilliqa (ZIL), and Tron (TRX), which previously existed as tokens on the Ethereum blockchain.
4. Is Ethereum a coin or a token?
Crypto coins usually have their independent blockchain, whereas tokens do not have their native blockchain. Since Ethereum (ETH) operates on its own blockchain, it is a coin. Tether (USDT) can be an example of a token since it runs on the Ethereum blockchain
