Crypto Coin vs Token: Differences and Examples

There are many cryptocurrencies available in the cryptocurrency market, and some of the most frequently interchangeable terms in relation to them are “coin” and “token”. Although coins and tokens both refer to cryptocurrencies, there are differences between them in terms of functionality. Thus, understanding what a coin and token in cryptocurrencies are can assist in making more rational decisions.

What is a Crypto Coin?

Crypto coin can be defined as a digital currency which runs on its blockchain. This is an intrinsic part of a blockchain and is mostly used for value transactions and payment of transaction fees. Coins are vital for the functioning of blockchains as such and are usually rewarded to miners or validators.

Among other cryptocurrencies, the following are examples of coins: Bitcoin, Ethereum, Solana, and Dogecoin). All these are cryptocurrencies which have their own blockchains and act as the basic currency in the ecosystems.

So, Bitcoin runs on the Bitcoin blockchain, while Ethereum runs on the Ethereum blockchain. People pay transaction fees in BTC on Bitcoin and in ETH on Ethereum.

What is a Crypto Token?

Crypto Token is a type of crypto asset which is developed through an already existing blockchain network and not through a separate blockchain network.

Tokens do not restrict themselves to performing tasks of a digital currency only like cryptocurrencies. Instead, tokens are capable of representing anything like ownership, governance power, access to services, rewards or physical goods.

Chainlink, Uniswap, Tether, and Shiba Inu are some popular crypto tokens in the market.

These tokens were developed by many developers on the already existing Ethereum blockchain network by making use of standards such as ERC-20. As developers have the capability of developing tokens through an already existing blockchain network, developing a crypto token is easier than developing an entire blockchain network.

What are the Key Differences Between Coins and Tokens

The key difference between them is that coins operate on a unique blockchain, while tokens operate on existing blockchains.

Coins are meant primarily to be digital currencies. Coins are meant for making transactions, paying for network fees, and ensuring blockchain network security. But tokens can have much more varied uses: tokens can give the user the right to vote in decentralized communities, be tickets to use applications built on top of blockchain technology, act as digital collectible assets, or even act as stablecoins that are collateralized by real-world assets.

The development process of coins and tokens also differs significantly in terms of its complexity. The development of a coin involves creating and maintaining an independent blockchain network. The development of tokens, in turn, is a relatively simple task since developers can use the existing blockchain infrastructure.

Moreover, transaction fees also are different. Transactions involving coins are made in the blockchain’s native currency. In turn, transactions with tokens involve paying the fee in the native coin of the host blockchain.

A simple example

In case one has trouble distinguishing between a blockchain and a coin, one can think of them as a shopping mall. Here, the shopping mall represents the blockchain, while the currency issued by the mall represents the coin. In this case, all stores within the shopping mall use that currency as the main means of payments.

Similarly, stores within the mall are able to issue loyalty points, gift cards, and membership passes which act as tokens. These tokens exist within the ecosystem of the shopping mall and depend on the mall’s infrastructure.

By using this analogy, Ethereum is a blockchain, ETH is a coin, and LINK, UNI, and SHIB are some examples of tokens that are created on this particular blockchain.

This information could be beneficial for those who want to determine whether a cryptocurrency is a coin or a token. It can give an investor a clue on the type of project, as coins are mainly dependent on the development and security of the blockchain, while tokens are used for specific purposes.

When investing in a crypto project, it is always useful to have the knowledge about its structure.

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