Crypto Token vs Coin: What's the Difference? | OWNR Wallet

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Crypto Token vs Coin: What's the Difference?

When plunging into the world of cryptocurrencies, you may encounter many questions. Today we will talk about the difference between crypto coins and tokens. Many people believe that they are synonyms, and that there is no difference between coin vs token, but this is not entirely true. In this article, we will discuss the functions of coins and tokens, their purpose, what is better (coin vs token), and the ways to use them.

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Token vs Coin: What is a Coin?

When considering the difference between coins vs tokens, the first thing to notice is that a coin is a cryptocurrency that has its own blockchain technology. This means that Ethereum and Bitcoin are coins with their own blockchains of the same name.

If a cryptocurrency has its own blockchain, it means that you use the coins to pay transaction fees. Also, miners who participate in the processing of blocks and transactions receive rewards in the same coins. Here's an example if you're confused: let's say you want to transfer Ethereum to another person.

Ethereum is a coin with its own blockchain, also called Ethereum. This means that a small part of the Ethereum that you transfer will go to pay the commission for this transfer. And the miner who processed this transaction will receive a reward in the form of this small amount of Ethereum. The fee is paid in Ethereum because you are transferring money through the Ethereum network. If it was the Bitcoin network, you would pay the fee in Bitcoin.

How Is a Coin Used?

Coins have several important purposes:

Firstly, the coin represents some kind of ecosystem (blockchain). It doesn’t matter if it's Bitcoin, Ethereum, or Solana - they all have their own blockchains, which means that other crypto projects can be created based on their blockchains.

Secondly, "Coins" are transferred between users on the blockchain network. You can buy, sell, or trade coins with others using cryptocurrency exchanges or wallets. Coins may differ in their “purpose”. Any coin can be transferred, withdrawn or simply stored, but if you look at the functionality of coins more broadly, you can notice that, for example, Bitcoin had a fairly important mission - it was the first decentralized cryptocurrency, it was something unique. There is a Monero coin - it is distinguished by its anonymity. However, there are also coins such as Dogecoin (memcoins) - they represent a meme and have no other meaning or purpose. The price of a coin, like the price of a commodity, is determined by the law of supply and demand on the cryptocurrency exchange.

Finally, any coin is a digital asset, even memcoins have some value, which means you can invest in them or simply store money.

Examples of Coins

To make it easier to understand the nature of coins and their purpose, here are a few popular crypto coins and their distinctive features:

  • Ethereum (ETH): A platform for decentralized applications, smart contracts, and NFTs. The Ethereum ecosystem is vast and includes a wide range of projects and applications.

  • Binance Coin (BNB): The native cryptocurrency of the Binance exchange, and the world's largest exchange by trading volume. BNB is used to pay trading fees, engage in staking, and participate in Binance Launchpad offerings.

  • Cardano (ADA): A blockchain specifically designed for processing smart contracts. Cardano uses a Proof-of-Stake consensus mechanism, which is considered more energy-efficient than Proof-of-Work.

  • Solana (SOL): A blockchain optimized for high performance and low fees. Solana can process thousands of transactions per second, making it an attractive choice for DeFi and NFT applications.

The common feature of all these cryptocurrencies is that they each have their own blockchain. Also, if you transfer crypto from a crypto wallet or a wallet on an exchange, then the transaction will pass through the native network, and commissions will be charged in native coins.

Token vs Coin: What Is a Token?

Unlike coins, tokens don’t have their own blockchain. Tokens are created on the basis of an already existing blockchain. For example, the Shiba Inu token operates on the Ethereum blockchain. What does it mean “the token operates on the Ethereum blockchain”? This means that all transactions are conducted through the Ethereum network (ERC-20). Transaction fees are also paid in Ethereum, and miners who process a token transaction are rewarded in Ethereum.

The very first such token was ERC-20, which created the hype around Ethereum in 2017. In short, this standard of fungible tokens allows users to create, issue, and manage currencies supported by Ethereum. Since then, the standard has only expanded, adding ERC-721 tokens (non-fungible tokens) and ERC-1155 tokens (semi-fungible tokens).

A good example of a token on the Ethereum blockchain is SEND. This token is used in the sandbox metaverse and is an ERC-20 token.

It is possible to create other tokens based on the Ethereum blockchain thanks to the compatibility of smart contracts. To clarify, the ERC standard makes it possible to deploy smart contracts, which allow the use of fungible or non-fungible tokens. In other words, you can create your own cryptocurrency or digital asset without running an entire blockchain yourself.

Differences between coins and tokens:

  • Blockchain: Coins, unlike tokens, have their own blockchain, while tokens simply use a different blockchain.

  • Functionality: Coins primarily serve the function of exchange or store of value, and tokens serve different functions depending on the project they belong to.

  • Value: The value of a coin is determined by the market law of supply and demand: the value of a token is determined by the success of the project or decentralized application that issues the tokens.

  • Regulation: Coins are generally regulated as securities, while tokens may or may not be regulated depending on their specific use and characteristics.

How Tokens Are Created

To create a token, you first need to decide on which blockchain the token will be functioning on. Next, you need to create a smart-contract (a smart-contract is a set of code that defines the rules and functions of a token). You don’t need to be a programming genius to create a smart-contract, you just need to have basic coding skills. A smart-contract can be written in programming languages ​​such as Solidity (Ethereum), Vyper (Ethereum) or Rust (Solana).

Once the smart-contract has been created, it is placed on the selected blockchain. The hosted smart-contract creates tokens. After this, the token creator decides how the tokens will be distributed (for example, ICO, token sale, reward for use).

The Purpose of Tokens

A token is usually created for someone’s project (service or game), and token can provide access to these services. Token can be the internal game currency. Tokens can provide access to decentralized applications. In some cases, tokens may provide the right to receive dividends or other forms of profit. Some tokens offer lower fees than the native blockchain currency, which attracts customers.

A Huge Benefit of Creating Tokens

Creating tokens saves money, time, and resources. Decentralized application and token developers do not need to put any effort into creating their own blockchain; they can benefit from the security of an existing blockchain. Also, if a cryptocurrency does not have its own blockchain, then there is no need to look for miners to process all the transactions within the blockchain. Also, a secure blockchain will require many miners. Therefore, it is much easier to run multiple tokens and applications on the same blockchain.

A Further Look into How Tokens Work

Let's take a closer look at how tokens work. Let's take Civic as an example. Civic has a token called CVC which is used in their service. Civic is a company that stores user data in encrypted form (which ensures anonymity and security) and helps people quickly get verified.

For example, say you are going on vacation, and the airline needs your data. Instead of a long process, the airline sends you a QR code via Civic to request information about you. Next, you can send your data to the airline from your mobile device. You can also use a fingerprint or iris scan to confirm your details. You can provide data from one device in different places, such as hotels.

What is the CVC token used for?

The token is used to pay for data transactions from a mobile device to other users. Simply put, Civic services are paid for with a token.

Some CVCs are also sent to you, the user. This is meant to encourage the use of Civic, since companies needing document verification will eventually have to buy more tokens from users. This creates an economy in which everyone is rewarded for participating.

Token vs Coin: Security Token, Equity Token, or Utility Token?

Finally, our comprehensive guide to crypto coins and tokens will also cover the different types of tokens: Security (or Asset) Tokens, Payment Tokens, Equity Tokens, and Utility Tokens.

Security tokens are the majority of tokens issued as part of an ICO. When you purchase such tokens, you are investing in the ICO and can expect profits in the future. Swiss law treats such tokens on the same basis as investments in securities or gold.

Share tokens are similar to security tokens in their purpose: these tokens represent shares of a project or company. However, very few startups issue this type of token, as there are unclear aspects from a legislative point of view.

Utility tokens are tokens that are used in decentralized applications. These tokens can be used to pay for services and goods provided by the application. They can also be used as in-game currency.

Payment tokens are self-explanatory: they are used as a form of payment for goods or services.

What About Stablecoins? Are They Coins or Tokens?

Stablecoins are coins that do not belong to any specific network; they often operate on multiple networks. A stablecoin is the equivalent of any fiat currency. However, the main function of stablecoins is as a medium of exchange. Stablecoins are backed by fiat currency, provided by the companies that issue these stablecoins.

Conclusion

When comparing coins vs tokens, it’s important to note that both coins and tokens are an integral part of the digital economy. Coins have their own blockchain and are used as rewards for miners who participate in processing transactions on that blockchain. Tokens are used in decentralized applications as a means of payment for services or goods. Сoins are primarily used as money, while tokens serve various purposes on decentralized applications, such as enabling features, granting voting rights, facilitating transactions, and providing rewards or discounts.

FAQs

What is the difference between a coin and a token?

Coins are the native cryptocurrency of a blockchain and are used to reward miners. Tokens are a blockchain-based cryptocurrency, and are used in decentralized applications. They do not have their own blockchain.

Is ETH a token or a coin?

Ethereum is a coin because it has its own blockchain of the same name.

Can a token become a coin?

A token does not have its own blockchain; it works on the basis of another blockchain, so it is almost impossible for a token to become a coin.

Why use a token instead of a coin?

A token is used if you need to purchase a product or service in decentralized applications.

DISCLAIMER: None of the authors, contributors, administrators, or editors connected to OWNR Wallet encourage readers to invest in cryptocurrency without doing proper research on their own. This article is purely for educational purposes only.

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