In this post, we will examine the differences between a cryptocurrency and a token.
We’ll also explore what crypto tokens means, how it differs from crypto coins, and why you should care about it.
Cryptocurrency is a type of digital currency that uses cryptography to secure transactions in its network.
It’s not printed by physical entities like paper money or minted coins- instead, new units are created by computers using mathematical algorithms to solve complex equations (called mining).
The first cryptocurrency was Bitcoin in 2009; today there are more than 4,000 different types of cryptocurrencies available with varying degrees of anonymity and security.
While cryptocurrencies share many similarities with traditional currencies such as dollars or euros they have some key features that make them unique.
Cryptocurrency and Tokens are both digital assets that can be traded online, but many people don’t understand the difference.
In this blog post, we will explore cryptocurrency vs tokens to help you better understand the differences between these two assets.
There are numerous factors to consider when deciding which one is right for your needs – read on to find out what those are.
What are Cryptocurrencies?
Cryptocurrency is a type of digital asset designed to work as a medium of exchange using cryptography.
Cryptocurrencies are decentralized systems based on blockchain technology, typically implementing a public ledger (a distributed database) that records transactions and ownership in chronological order.
Decentralized cryptocurrency isn’t controlled by any central authority – it uses math for security purposes instead of trusting the competence or honesty of an institution.
Cryptocurrencies can either be coins or tokens.
No, they’re NOT the same. One is actually built on the other.
What is a Cryptocurrency Coin?
Cryptocurrency coins are digital assets that have their own standalone.
Coins refer to any cryptocurrency that has self-standing and independent blockchain technology.
These are the type of Cryptocurrencies that were created and from scratch to the top on their own. And built to achieve a specific goal.
Crypto coins are virtual coins that can also be utilized to purchase goods and services online.
Crypto coins are an open-source, decentralized cryptocurrency based on blockchain technology that operates independently.
Cryptocurrency coins operate with zero dependencies.
Zero dependencies meaning that they do not need to rely on third-party networks, besides their own blockchain for maintenance or security.
People can typically buy or swap cryptocurrency coins directly from cryptocurrency exchanges where you may purchase these coins using fiat money such as US dollars or euros depending on their availability in that particular country.
This type of exchange operates just like any other trading platform which offers different types of stock options (penny shares) but instead offers crypto coins.
Example of Cryptocurrency coins
1). Bitcoin (BTC)
Bitcoin is a cryptocurrency that was launched in 2009. It uses peer-to-peer technology to operate with no central authority; managing transactions and the issuing of bitcoins is carried out collectively by the network.
Several of the newer crypto coins are built and underpinned by Bitcoin’s protocol.
2). Ethereum (ETH)
Ethereum is a cryptocurrency coin and distributed computing platform, with emphasis on smart contracts.
It provides a decentralized virtual machine that can execute scripts using an international network of public nodes. Ethereum was proposed in late 2013 by Vitalik Buterin, then a 19-year old programmer working for Bitcoin Magazine.
3). Litecoin (LTC)
Litecoin is a cryptocurrency that enables instant payments to anyone in the world and that can be efficiently mined with consumer-grade hardware.
Litecoin is based on the Bitcoin protocol but differs from it by having a decreased block generation time.
4). Ripple (XRP)
Another Cryptocurrency coin that operates independently.
Ripple is a technology that acts as both a crypto coin and a digital payment network for financial transactions. It enables banks to send real-time international payments across networks.
5). Polkadot (DOT)
Polkadot is a blockchain platform designed to offer an alternative protocol for decentralized applications and the Internet of Things.
6). Cardano (ADA)
Cardano is a decentralized public blockchain and cryptocurrency project that has been developed by IOHK since 2015.
It uses the Haskell programming language, which was specifically designed to include certain features to make it suitable for smart contracts.
Other worthy mentions include:
- Binance coin
Crypto coins function on their respective blockchains and are always used to fuel transactions of cryptocurrency tokens built on their individual networks.
What are Cryptocurrency Tokens?
Tokens are representations of a particular type of asset or utility (e.g., cryptocurrency).
They usually represent a unit of currency within an ecosystem. The token might be redeemable or purchasable for one, some or all the services that exist in the network/system.
Crypto tokens can be used as payments for goods and services, or they can represent an investment in the company that issued them.
Tokens are created on top of existing blockchain protocols like Bitcoin, Ethereum, Cardano, etc.
Crypto tokens are created to represent something else (e.g., cryptocurrency, fiat currency)
Tokens don’t have a blockchain network of their own. They are created on existing blockchain technologies.
Basically, anyone can create digital tokens using one of the many platforms in the DeFi (Decentralized Finance) ecosystem.
Unlike Coins, tokens can’t be bought directly on cryptocurrency exchanges with fiat money.
The only way to buy tokens is by first buying the coins on which the tech is built, then swap the coins into crypto tokens within that network – with a gas fee charged in that network.
Let’s take for example:
Uniswap (UNI) popular token and a decentralized exchange that runs on the Ethereum blockchain.
They only buy Uniswap tokens by swapping Ethereum because it is built on the ERC-20 network.
Example & List of Cryptocurrency tokens
- Chainlink token (LINK)
- Uniswap token (UNI)
- Polygon token (MATIC)
- Tether (USDT)
- Aave (AAVE)
- THORChain (RUNE)
- PancakeSwap (SWAP)
- Binance USD (BUSD)
- Basic Attention Token (BAT)
While Crypto tokens often share deep compatibility with the cryptocurrencies of that network, they are a totally different digital asset. The majority of them do not have actual use-cases YET.
Main Difference Between Coin and Token in Cryptocurrency?
The main difference between crypto coins and crypto tokens boils down to two points:
Crypto tokens represent specific rights within the network on which they reside while Crypto coins happen to be the main cryptocurrency. However, both are digital assets that reside on the blockchain.
Crypto coins and crypto tokens also happen to have their own product-market fit with each of them having different use cases in a variety of networks, too.
#1. Medium of exchange
Crypto coins are the cryptocurrency that most people know well and can be used as a store-of-value or medium of exchange on crypto exchanges.
While tokens can’t be bought directly via exchanges.
Crypto tokens have been developed for specific purposes in order to serve different use cases on various networks such as decentralized applications (DApps).
While crypto coins can be generally used as money. And also used to fuel transactions on their networks.
Digital coins are mostly distributed through mining, while tokens became popular with ICOs.
Mining is a process that involves solving difficult puzzles to create new blocks of data on the blockchain and earn virtual currency as rewards.
Tokens may also be obtained by investing in an initial coin offering (ICO) for cryptocurrency-related ventures or startups who have not completed their product development but need funding upfront so they can continue working.
The disagreements between coins and tokens are ultimately what makes them unique.
Coins need to be exchanged through cryptocurrency exchanges because they are built on different, non-standardized code protocols; this is the process that makes it difficult for cryptocurrencies to interact with each other seamlessly since there’s no common ground on which every coin can work off.
On the contrary, tokens on Ethereum – ERC20 – do have an easier time communicating with one another due to their systemized coding protocol – you’re less likely to run into any problems swapping a token within its own application or across others.
FAQS on Coins vs Tokens
Is Cryptocurrency a token?
No Cryptocurrency isn’t a token. But a token is a form of Cryptocurrency.
Cryptocurrency can either be a digital coin or token that can be exchanged for goods and services.
Majority of the tokens are often built on top of the Ethereum network, which has its own protocol called ERC20 to create tokens within their blockchain.
Is Bitcoin a token or coin?
Bitcoin – the first-ever crypto asset – is a coin and not a token.
Which is better coin or token?
Crypto coins are better than tokens because a coin usually has more money utility than tokens. And Coins also offer the highest degree of independence and flexibility than tokens.
Are crypto tokens worth anything?
Definitely, tokens are worth it. Although they do not have platforms on their own, they are worth something for the same reason coins are.
How does a crypto token work?
Crypto tokens work almost in the same way coin works. One of the differences is that they’ve created through the deployment of smart contracts, unlike coins.
On the other hand, tokens usually offer utility features and can power their application without any need for mining which is one of cryptocurrency’s key principles.
Tokens live in an environment outside the control of the company that created them, within a cryptocurrency ecosystem.
How many crypto tokens are there?
As of when writing this, there are exactly 4,094 crypto tokens listed on CoinMarketCap.com.
How many ERC-20 tokens are there?
As of May 2021, there are 951 crypto projects based on the ERC-20 token standard. You can check the latest number on Etherscan.io.
What is the point of Cryptocurrency?
The point of Cryptocurrency is simple; help people carry out safe, secure, and anonymous transactions without the interference of any third party.
It also helps combat issues like inflation and corruption to some extent.
What is the point of Tokens?
Tokens are a form of cryptocurrency that can be used to represent any unit with an established value or utility in its own network, but which doesn’t have its own blockchain.
They’re created using smart contracts on existing blockchains such as Ethereum Cardano, Polkadot, so they act as a form of cryptocurrency.
What are the similarities between Cryptocurrency and Tokens?
Both have been built to replace fiat money, store value, and be more liquid than traditional securities such as stocks or company shares.
They are both digital assets, tradable, hold-able, and all built upon Blockchain.
Can a token become a coin?
To convert a token into a cryptocurrency coin, first, you have to swap or convert it into its mother Blockchain currency. But a token can’t technically be called a coin.
What gives crypto tokens value?
Adoption by the crypto community gives tokens value.
Just as the same way cryptocurrency coins gain their value based on user demand, scarcity or coin’s utility – that’s the same way tokens value/price increases.
Is Chainlink a coin or token?
Chainlink is an Ethereum-based ERC-20 token. It is not a coin.
Is Bitcoin a utility token?
No, Bitcoin is not a utility token in any way. Utility tokens are not mineable and are based on third-party blockchain technology.
How do I get ERC-20 tokens?
To get ERC-20 tokens you need to buy them from cryptocurrency exchanges like Binance, Kraken, Coinmama as an Ethereum.
Then you exchange the coins for the ERC-20 tokens on your wallet.
What is the Chainlink token used for?
The Chainlink (LINK) token is an ERC677 token that inherits its functionality from the ERC-20 standard.
It is used as a means of payment for node operators who gather information on behalf of smart contracts. It also pays for deposits made by node operators as required by contract creators.
Is Chainlink only on Ethereum?
Chainlink is not only an Ethereum project.
The token’s design makes it compatible with other blockchains, and they have plans to be on multiple blockchain networks in the future.
This means that as new technologies emerge or existing ones mature, you’ll still be able to use Link tokens for off-chain data oracles if those are the most appropriate tools for a particular use case.
Are digital assets Cryptocurrency?
Not all digital assets are Cryptocurrencies (coins and tokens). But all Cryptocurrencies are digital assets.
Which one should I invest in – Tokens or Coins?
It is advisable to get to know about cryptocurrencies and tokens before investing in them.
Cryptocurrencies are digital currencies that are secured by cryptography, while Tokens have their own blockchain platform with its own functionality for sending messages between token holders.
To get started I’d advise you to begin with coins, learn how to move and trade one coin for another, before considering getting into tokens.
I found Coinbase and Binance to be the best crypto exchanges for moving, swapping, trading, and buying coins.
In the cryptocurrency vs tokens debate, both sides have their merits.
One of the biggest advantages of a token is that it’s much easier to generate an initial value for a new blockchain project than with cryptocurrencies like Bitcoin and Ethereum which had no pre-existing market to trade them in.
Both are digital assets that reside on the blockchain, but they’re not the same thing at all.
One is used as a medium of exchange while another serves specific purposes in different networks.
Crypto Coins can be used as transactions on the networks they fuel, but tokens cannot because of their utilities.
Coins are not limited by utility in just one place but can take many different forms such as asset holdings, store of value, mediums of exchange, etc., while crypto tokens have been developed with specific utilities for their use cases.
Now, you’ve learned and understood what Crypto coins and tokens are all about?
Let me know which crypto assets you’re currently holding.