Token and coin are commonly used terms in the crypto world, often interchangeably. However, these appear to point to the same thing in representing a store of value like any fiat currency such as dollar, yen, pounds, etc. But when discussing token vs. coin, you must remember that tokens are different from coins. The coin is a term used to define a form of digital money, whereas digital tokens represent something to which you can assign a price. The explanation should help to understand the vocabulary of digital currencies better as it keeps evolving fast with newer terms making the list of coins longer each day. The similarity between tokens and coins is that both relate to crypto-currencies based on block chain.
Token Vs. Coin
Let us go back to the basics to understand the difference between a coin and a token.
What is a Coin – Everybody understands what a coin is, an official currency carved out of some metal that bears the stamp of the government issuing it. This definition applies to any fiat currency. But when used in the context of digital currencies, a coin means a blockchain-powered cryptocurrency that does not have any real-world equivalent. The characteristic of a coin residing on its blockchain is highly significant because it acquires the highest level of flexibility and independence by establishing its protocol. The company behind the coin can control every aspect of the cryptocurrency, like fees, consensus mechanism, and transaction mechanism.
Bitcoin is the most famous and popular coin, followed by Ethereum, Lite coin, XRP, EOS, and Bitcoin Cash, to name a few.
What is a Token – Crypto tokens are entirely different from coins because they are an asset’s digitalized form. The asset the token represents might comprise a tradable commodity; embody a utility, voting rights, loyalty points, and more. Since tokens are built on the top of the blockchain platform, does not have any say in the network’s development as it uses a pre-determined protocol. Smart contracts help to define tokens and can provide value through their purpose. For example, Tether is a token built on the Ethereum blockchain and uses the ERC20 standards for its operation. You can send Tether to any Ethereum address.
The Differences
Here are the differences between crypto token vs. coin
- A coin remains rooted in its blockchain, whereas a token exists in the form of smart contracts that sit on the top of the blockchain.
- Besides using different algorithms, another difference between tokens and coins is that coins have money utility that is useful for backing smart contracts, and applications are used for staking and validating contracts. While Bitcoin is known for its money utility, Ether helps to drive the Ethereum network’s smart contracts.
- The fee systems are different for coins and tokens. Coin trading does not involve fees, but you must pay a network fee for trading in tokens.
To conclude the token vs. coin on a realistic note, the differences underline the different purposes of coins and tokens, which are never interchangeable.
