For many crypto users, terms surrounding cryptocurrencies may be challenging and confusing. The world of cryptocurrencies is filled with computer jargon and terminologies that may be difficult to wrap around for beginners and seasoned users as well. Often you will hear people use the words, “coin” and “token” interchangeably. But are they the same? This article aims at highlighting the fundamental differences between coins and tokens. Hence, next time you are explaining cryptocurrencies or planning to invest in one you are more informed as to what exactly they are.
What are cryptocurrencies?
Coins and Tokens are generally referred to as cryptocurrencies. You are probably wondering what are cryptocurrencies? So let’s begin by defining cryptocurrencies. The term itself is an amalgamation of two terms cryptography and currency. Cryptography refers to the use of encryption techniques(enciphering and deciphering) to decode messages, on the other hand, currency refers to a medium of exchange that is widely accepted in a particular jurisdiction. Therefore, cryptocurrencies can be defined as digital/virtual currencies that have been secured using cryptography.
Coins or rather crypto coins are digital currencies that store value over time and can be used as means of exchange. For a cryptocurrency to be considered as coin it must operate on its own blockchain independent of any other platform. Whereby, a blockchain is a public and distributed digital ledger that records transactions of a particular cryptocurrency. Blockchains help in increasing transparency by storing and sharing data collectively between the network’s participants. Ideally, a coin is the equivalent of a digital dollar bill that can be used to buy, sell and invest.
Bitcoins are the most common and popular crypto coins. Their creation and eventual success have ushered the creation of even more coins. Today there are over 880 crypto coins in circulation all over the world. Developments in the cryptocurrency economy have seen the development of alternative coins( popularly known as altcoins), built from Bitcoin’s original, open-source platform. Examples of altcoins are Litecoin, Namecoin, Dogecoin, Auroracoins, Peercoins, among others. There are also other crypto coins such as Ripple, Ethereum, Omni and Cardano that are created using their own distinct blockchain platforms.
Tokens are a digital representation of assets that can be transferred and exchanged. Tokens, unlike, coins allow a holder to participate in a network. Another fundamental distinction between coins and tokens is that a token do not necessarily operate on their own blockchains but are hosted on another platform like Ethereum. While they are used for exchange tokens assume a wider functionality compared to that of coins. Tokens are mostly used for performing specific functions, like shareholding for a company. A shareholding token cannot be used to purchase a ticket for a concert.
Tokens are usually generated and distributed through an ICO which is similar to an IPO for stocks. In the ICO(Initial Coin Offering) the public is offered an opportunity to purchase tokens that goes-ahead to fund a particular project. The most popular and common tokens are Tron(TRX), EOS, and OMG. Most tokens are developed under the Ethereum blockchain platform, other tokens such as Omni, NEO, Qtum and Waves are also gaining prominence over time. Today, there are over 590 tokens in use across the globe.
From the above definition, one can, therefore, deduce the subtle differences between crypto coins and tokens. While the cryptocurrencies are built on separate and distinct structures they also offer diverse functionalities and applications. Next time you are asked to differentiate between a coin and token, I hope you are able to give a more informed answer.