- March 7, 2019
- Posted by: suma
- Category: Blockchain
People who are new to cryptocurrency often get confused about the terms “coin” and “token”. Sometimes people use the term “coin” to refer to what other people call “tokens”, and “token” to refer to what others call “coins”. Some people will use either name to refer to all the digital assets currently available.
However, there are very big differences between crypto coins and crypto tokens, so it’s important you know what they are!
What is Coin?
Crypto coins and tokens are basically cryptocurrencies. Coins are often called altcoins or alternative cryptocurrency coins. Think about Bitcoin, Litecoin, or Ether. Each of these coins exists on their own blockchain. These coins are digital money, created using encryption techniques, that store value over time. Transactions of digital coins can be made from one person to another. However, no physical coins move when you send and receive them. All the “coins” exist as data on a giant global database. This database (or blockchain) keeps track of all the transactions and is checked and verified by computers around the world.
What is Token?
Cryptocurrency tokens are usually “mined” by processing blockchain transactions. Each blockchain has a different mining method, including Proof-of-Work, Proof-of-Stake, Proof-of-Skill, and hybrids of each model. Cryptocurrency tokens are stored in wallets and can be exchanged using private/public key combinations. Many cryptocurrency transactions are exchanged directly, but cryptocurrency exchanges like Binance exist to make converting tokens between each other and cashing out easier.
Token vs. Coin
The express purpose of a coin is to act like money: as a unit of account, store of value and medium of transfer. Coins tend to take the form of native blockchain tokens like bitcoin (BTC), Litecoin (LTC), Monero (XMR), and so on, though they do not have to. ChronoBank’s Labour Hour (LH) tokens, which are hosted on Ethereum, can be considered as coins. Their purpose is solely to act as a form of money, storing value over time and enabling businesses to account and pay for services. They are created as ERC20 tokens for reasons of convenience.
Blockchain tokens do have value, but they cannot be considered money in quite the same way that a straightforward coin can. Tokens are generally hosted on another blockchain, like Ethereum or Waves: 2.0 protocols that allow users to create them using the core coin (e.g. ETH or WAVES — though there’s some debate about whether ETH and WAVES, both of which act like ‘fuel’ for their systems, are coins in the same way that BTC acts as a simple currency).
Coins are most often used simply as money; however, some coins do have other uses. These include being used to fuel applications, being used as a stake to validate transaction on a network, or being used to fuel smart contract and token transactions. Meanwhile, tokens serve a different purpose. If they were created to be used on a dApp, then their purpose will depend on the application itself. In some cases, they are for features such as voting rights. In other cases, they are used for transactions on the dApp (like Civic) or to reward the users with things like discounted fees etc. (like Binance).